Paying for college is not an easy for many families. You have to do what’s best for your situation and the first step is researching on the different options available, including student loans. Beside, student shouldn’t eliminate the option of applying for scholarship and financial aid to help cover their education costs as well.
Although the interest rate on direct undergraduate federal student loans, in the United States, will increase to 5.5 percent from 4.99 percent after July 1, 2023, the interest rates on student loans considered to be lower than other loans.
Graduate student borrowers will see the rates on their loans increase as well, to 7.05 percent from last year’s 6.54 percent. Also, the interest rates on Plus loans will go up to 8.05 percent from 7.54 percent.
Although students can possibly find a better interest rate with a private lender, but federal student loans come with benefits that could wind up being more valuable than a lower rate.
The following are the reason why the federal student loan is better than the private student loan:
Flexible Repayment Plans
The federal student loans come with a variety of repayment options aimed helping borrowers make an easy payments.
You can choose from a standard repayment plan to see your federal debt paid off in 10 years or explore Income-Driven Repayments IDRs, where monthly payments are set at a percentage of your disposable income.
It might take longer to pay off your loans with an IDR plan — and thus cost more in interest — but they’re designed to help you keep up with monthly payments and avoid turmoil caused by missing payments.
Loan Forgiveness
In the United States all federal student loan borrowers, making less than 125,000 USD a year may see some or all of their student loan debt forgiven.
Although the plan initiated by President Joe Biden aimed to eliminate most of the student loans, the federal loans are also eligible to be forgiven through other programs, including Public Service Loan Forgiveness and Income-Driven Repayments IDRs. You’ll need to work in public service for 10 years or make payments on an IDR for 20 or 25 years in order to see any of your balance eliminated, but it’s more relief than most private student loans.
In some countries, for instance Finland, you are eligible for the student loan forgiveness if:
- You began your first course of higher education study on or after August 1, 2014.
- You complete your degree within the target time and
- You have outstanding government-guaranteed student loan student debt totalling more than 2,500 euros.
lower Interest Rates
With federal loans, not only do you keep the same interest rate, but you won’t have to pay interest on subsidized loans while you’re in school. Subsidized loans are intended for borrowers who demonstrate financial need. The government covers the interest fees on these loans if you’re in school at least part-time, for the first six months after you leave school and during periods of deferment, like if you choose to go back to school or need to pause payments due to financial circumstances.
The lower interest rates on the student loans are, with no specific order, in Japan, Finland, Germany, Iceland, Scotland and Sweden. In these countries students may be eligible for free tuition too.
The lower interest rates on the student loan are:
- 0.2 percent in Finland
- Switzerland is 0.75 percent
- Japan reported an unchanged interest rate of 0.1 percent.