Paying off federal loans vs private loans
There’s no definite answer when it comes to which can be paid off faster, federal student loans or private student loans. It depends on the amount of your loans, how much your payments are, your interest rate, and how much money you’re making after school:
- How much is your monthly student loan payment?
- Did you choose a repayment plan where you make payments during school, or did you have a grace period after graduation?
- Is there a cosigner on the loan? Are they helping with payments?
- Are you keeping up with your payments and paying interest that accrues (grows) before it capitalizes (is added to your principal amount)?
Tips for repaying your student loans
How student loans are different than other types of loans
Be sure to understand the difference between private student loans and personal loans. They sound similar, but there are important distinctions:
- Private student loans are for education, while personal loans can be used for things like consolidating credit card debt, making home improvements, or paying for a wedding. Some personal loans explicitly state they should not be used for post-secondary education or student loan debt.
- In general, private student loans have lower interest rates than personal loans. They can also offer the choice of a fixed or variable interest rate. A personal loan usually only offers a fixed interest rate, which can impact the amount of your payment.
- Private student loan funds are usually disbursed (sent) directly to your school’s financial aid office. Personal loan funds are deposited directly into the borrower’s bank account.
- Consider consulting with a tax and/or financial advisor to make sure you fully understand the differences.
