Public student loans contain significant benefits vis-a-vis ones offered by the private sector, not all of which are directly-related to the overall cost of the financing. These provide a number of compelling reasons to fill out the Free Application For Student Aid (also known as FAFSA) and attempt to qualify for publicly financing.
Student Loan Forgiveness Programs
The U.S. government offers a number of different forgiveness options for recipients of its student loan programs.
The government has a vested interest in encouraging individuals to work in certain professions, especially those that contribute vital services to society. For instance, some teachers may be eligible to have up to $17,500 of their loans forgiven if they have taught for five years in a low-income setting. To enjoy this benefit, you can submit a Teacher Loan Forgiveness Application that is found on the Department of Education’s website.
Similar benefits also extend to individuals working in federal, state, or local governments, healthcare professionals, and those filling jobs in the non-profit sector. This benefit does not depend on your role, rather on your employer.
In order to qualify, you must have made the equivalent of 120 monthly payments towards paying down your loan. In order to check your eligibility, you can fill out and submit a Public Service Loan Forgiveness form, which can be found on the Department of Education’s website.
Income-Driven Repayment Plans
Income-driven repayment plans are designed to give you the opportunity to repay your loans at a comfortable pace, without devoting a disproportionate amount of your monthly income towards servicing your student loans.
Under these arrangements, your payments are based on your monthly income, family size, and geographic location. Depending on the specifics of your plan, your monthly payments will be 10% of your discretionary income. (Discretionary income is defined as the delta between your annual income and 150% of the poverty guideline set by the U.S. government for your specific household.)
An additional benefit of participating in these plans is that any remaining loan balance will be forgiven at the end of the loan repayment period. To apply for one of the four income-driven repayment plans offered by the government, fill out an Income-Driven Repayment Plan Request form. The form can be accessed electronically on the Department of Education website, or you can also request a paper copy from your loan service provider.
No Minimum Credit Score
Receiving public loans does not depend on your credit score. Most prospective students will not have had the opportunity to establish much of a credit history by the time they apply for student loans, so this removes a major impediment for those wishing to obtain financing.
When making determinations regarding loans, private loan providers will base their funding offer–both the overall amount and interest rate–on your risk profile. Each type of public student loan offers a fixed interest rate, regardless of your finances. These rates are set every year, and tend to be lower than those offered in the private market.
Using the TipRanks’ student loan calculator can help you understand your estimated monthly payments as well as the overall cost of your loan.
Postponing Repayment and Avoiding Interest Accrual
For Direct Subsidized Loans and Direct Unsubsidized Loans, repayment will only begin 6 months after the completion of your studies. This benefit allows students to focus their energies on making the most of their education while in school, instead of stressing about paying back their loans.
Truth be told, many private lenders offer a similar structure, though this depends on the specific lenders and the contours of your individual loan. However, with the federal government, this 6-month grace period is a benefit that explicitly comes as part of the package deal.
For Direct Subsidized Loans, you will not be responsible for the interest that accrues during your time in school or during periods of deferral. For both Direct Unsubsidized Loans and most private sector loans, you will be responsible for the interest that is accrued throughout the lifetime of your loan.
In addition, recipients of public loans can apply for repayment deferrals for a variety of unexpected hardships. While not automatically granted, these are fairly straightforward to apply for using the Loan Deferment and Forbearance form on the Department of Education website. If granted, these deferments allow students who have unexpected or extenuating circumstances the opportunity to cope with their specific issue without worrying about their student loans.
Students who have received private student loans also have the option of requesting a loan deferral, of course, which your lender has the discretion to grant. However, the goal of each private lender is to make money, not necessarily to contribute to a more well-educated populace or to encourage individuals to pursue careers in essential industries and professions. Private lenders could agree to offer you a deferral, but they could also choose not to.
(There are other, perhaps unexpected perks that can occur for recipients of public sector loans. During COVID, for instance, the government postponed student loan payments.)
Conclusion: Public Student Loans Carry Proven Benefits
Public student loans have numerous benefits over financing offered by the private sector. These benefits are built-in structures of the loan, not additions that you need to bargain for. If you are able to qualify for public financing, this should be your first choice.
Whichever financing you choose, plugging in different variables into the TipRanks’ student loan calculator can help you estimate your monthly payments and the total cost of your loan.
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