Federal education loans are a no credit check alternative to private college student loans. This means that they are suitable for low income families and those who have a history of adverse credit. Private lenders will not offer student loans without cosigner because of the risk of the borrower defaulting. Whilst the government doesn’t want someone to experience difficulty making repayments, its priority is to encourage education for all economic groups in order to prevent exclusion.
The Rate of Interest on Federal Education Loans
Stafford and Perkins federal student loans are available on better terms than their private sector equivalent, but they lack the same flexibility. Perkins and some Stafford loans are means-tested which means that the rate of interest will be a lot lower. The interest rate on Perkins loans is just 5% and subsidised Stafford loans charge just 5.8% (subject to change). However, the reality is that only a small percentage of applicants will be eligible for subsidised borrowing. Unsubsidised Stafford loans (at 6.8%) are the most popular way of borrowing money from the federal government.
Stafford and Perkins Federal Student Loans Without Cosigner
Anyone who lacks a credit history or has missed/failed to make repayments on-time will be ineligible for private college student loans. In order to get approval from a bank, that person will need a cosigner with good credit. However, federal education loans are available without the need for credit scoring or a cosigner. This means that, in the event of default, the onus doesn’t switch from the borrower to the cosigner to keep-up with the repayments.
Federal Student Loan Debt Forgiveness Programs
Individuals who enter certain public sector professions, such as the armed forces, teaching or nursing, may be eligible for debt forgiveness. This means that, for every year of service, a certain percentage of the amount owed will be cleared. Unfortunately, the current economic climate means that a number of state employers have scaled-back the assistance that they offer. However, it is well worth investigating as it can help to considerably reduce student loan debt.
Federal Education Loan Default
According to an article in the Seattle Times, about 20% of borrowers default on federal student loans within the first three years. Default officially occurs when repayment hasn’t been received for a period of not less than 270 days. Defaulting on a Perkins or Stafford loan will mean that the borrower is no longer eligible for forbearance, debt forgiveness or deferral. Unlike credit cards and unsecured loans, it isn’t possible to write off student loan debt through bankruptcy apart from in exceptional circumstances.
Loans for College Students
It can be difficult to decide whether a private college student loan or a federal education loan is the right answer, but this needn’t be the case. The terms of federal student loans are far more favorable. Private bank lending should normally be used as a top-up if the amount needed to fund tuition and living expenses is insufficient. Remember that student loan debt must be repaid.