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Federal Government Student Loans Review

Michael Lux Blog, Student Loan Reviews, Student Loans 0 Comments

Getting student loans through the Federal Government is not a perfect system.  You have no control over the company you have to deal with, interest rates can be unreasonably high, and borrowing is very limited for undergraduate students.  Despite these flaws, Federal Government Student loans continue to be by far the best student loan option.

Lets jump right into the things the Federal Government can offer that the private loans cant compete with:

  • The Income Based Repayment Plans, like Pay As You Earn, ensure borrowers never have to pay more than 15% of their income towards student loans.
  • Even if you are unemployed and unable to make payments, by signing up for an Income Based Repayment plan, you can keep your loans current and your credit in tact.
  • If you end up working for the federal government, all of your federal loans can be forgiven after 10 years of timely payments on an eligible plan.
  • Certain payment plans allow your loans to be forgiven after you have made monthly payments for 20 or 25 years.  Though 25 years is a long time, it does ensure that you won’t be paying down student debt with social security checks.
[For full details on these perks, check out our Federal Government Repayment Plans Summary]

The argument against federal student loans – Interest Rates

Some, mostly banks and lenders, will tell you that private loans are the best option because they offer the lowest interest rate.  While that is true in some circumstances, the potential drawbacks make any slight difference in interest rates meaningless.

In the past year we have heard stories about family members getting stuck with the student loans of deceased students, because of the behavior of some lenders, we have even recommended that students get life insurance policies because of their private loans.

If you are still hung up on the difference in interest rates, look at student loans from this angle:  Think of the extra interest you pay as an insurance policy.  If you are unemployed, student loans won’t make your situation worse.  If you die at a young age, the federal student loans you take out cannot haunt your grieving family.  There are many people sharing student loan nightmare stories… avoiding federal loans is a huge step in avoiding becoming a sad story.

My parents make too much money for federal loans

This is a myth that needs to be stopped.  There is no maximum income for federal student loan eligibility.  Whether your are homeless or the child of Warren Buffet, the amount of federal loans that you are eligible for remains the same.  The only thing that income changes is whether or not the loan is subsidized – meaning the government pays the interest while you are in school.

What does this mean?  It means that if you are even considering taking out student loans, you should be filling out your FAFSA.  The FAFSA can be tedious, but it is easy, and it is the only way to get federal student loans.

Final Tip

Taking out student loans is a big commitment, and in many cases, taking out any student loan is a bad idea.  If you have decided that you must have a student loan, make sure that the first loan you look at is from the federal government.  These loans are far from perfect, but they are also by far the best option for most students.