Understanding What Differentiates Federal And Private Student Loans
In our line of work, we see that many Georgia residents are confused about the difference between federal and private student loans. Both federal and private student loans have their own advantages and their own issues that borrowers have to deal with. Understanding the difference between the two can help you with both borrowing and repaying. If, after reading this article, you have any additional questions about federal or private student loans, contact the experts at Galler Law. We have been helping Georgia residents with federal and private student loans for years.
Federal Student Loans
Federal student loans are the most common type of student loans. With federal loans, money comes from the U.S. Department of Education and goes directly to the school. Federal student loans allow borrowers to choose from several repayment plans.
Aside from multiple repayment options, there are several advantages to taking out federal loans. Some of these advantages are:
- Fixed Interest Rates
- Government Subsidies
- Interest Does Not Accrue During Schooling Or Deferment
One thing to be cautious of when it comes to federal loans is that these loans need to be paid back regardless of whether you graduate from college. Many Georgia students are shocked to find that they still need to pay back federal student loans after dropping out of college. Because these loans are not dischargeable in bankruptcy, Galler Law attempts to work directly with the lender.
Federal loans also include the option of forbearance, which means the Dept. of Education will allow nonpayment of the loan for a certain period. We often caution borrowers in Georgia that forbearance can do more harm than good, as interest continues to accrue during periods of forbearance. It is also our experience that borrowers choose the wrong repayment plan for federal loans.
For a small fee of $250, Galler Law will conduct a working meeting where we review your current repayment plan and make any changes as necessary.
Default on a Federal Student Loan
Many of our clients are in default on their student loans, and we can remove the default on many loans. This is typically another $500 fee. If we can remove the loan from default, then you can file for Chapter 13 Bankruptcy which will protect you from collection for up to 5 years.
Understanding Private Student Loans
Private student loans come from banks and other private lenders, such as Sallie Mae. Because private student loans are not subsidized, interest begins accruing as soon as the loan is taken out, and borrowers often have to make payments while still in school. Also, these loans are subject to variable interest rates, instead of the fixed rates you see with federal loans.
One advantage of private loans is that borrowers typically qualify for a higher borrowing limit, which can cover living expenses not directly associated with education. This is a double-edged sword, however, as it leads to more debt.
Many of our clients have used private student loans after exhausting federal limits, for instance grad school or for a professional degree.However, these loans have none of the payment plans offered by federal student loans, they are more like a traditional bank loan (except they cannot be discharged through bankruptcy.
In many cases, the best option is to settle the debt with the lender. For example, a doctor with $100k outstanding loans can negotiate with the bank to settle the debt for a fraction of what is owed, in a lump sum of, let’s say, $50k.
You’ll need to withdraw money from a 401k or other savings to settle the debt, but it’s worth it in the long run. In these cases, we charge a flat fee of $500 upfront and then 15% of the savings.
Therefore, if you’re saving $50k, our fee would be $7500 to settle the debt for you. This is a much better option than having to pay the $50k over the term of the loan including all of the interest accrued over that period. Because of the variable interest rate, choosing the settlement will work out in your favor.
Loan Problems In Georgia
As you can see, student loan debt can get pretty complicated, especially if you have a law degree or doctorate that required a combination of federal and private student loans. If you’ve defaulted on a student loan, contact us now for a working meeting to look over the details of your loan and start working on a debt-free future.