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With the cost of tuition continuing to rise, knowing the financial help available to students has become crucial to successful education. There are different types of loans and grants that college students can take advantage of, and understanding the difference between each of them will help students get the most out of them, lowering their financial strain.


For starters, there are two types of loans: private loans and federal loans. Private loans are loans funded by lenders such as banks and credit unions. Federal loans, on the other hand, are funded by the federal government.

Private Loans

When it comes to private loans, the lenders (which can be, but aren’t limited to banks, credit unions, and colleges) are the ones who set all the conditions and the interest rates. Because of this, these type of student loans are known to have variable interest rates, which, depending on the student’s credit score and history, can often be over 18%. Furthermore, payments on many private student loans begin right away, instead of waiting until after graduation, usually with no deferment options available.

There are, however, some benefits to private student loans, which include the possibility of having a cosigner. Adding a cosigner to the loan will often maximize the chances of getting approved – with a lower interest rate. Also, private student loans are available to students, regardless of whether or not they submitted their FAFSA; they are independent of each other. In fact, private student loans can often cover the entire cost of attendance, and if they don’t, they can be used in conjunction with the rest of the financial aid received to cover any gaps.

Federal Loans

Federal student loans are known to have more benefits than private student loans do. One of the main benefits is that federal loans have a fixed interest rate set by congress, which in most cases is lower than the interest rates offered by private lenders. Not only that, but if students qualify for a subsidized loan, then the government will pay the interest rate that builds up while the student is in school. Additionally, the interest that the student does end up paying on their federal student loans is usually tax deductible.

Another benefit of federal student loans is their repayment policies. Unlike with many private loans, students don’t have to start repaying federal loans until AFTER they’ve graduated. Furthermore, if the student graduates and is having a hard time repaying his or her federal loans, there are resources to help them. These options include lowering the monthly payments or postponing them for some time, as well as partial loan forgiveness.

To qualify for a federal loan students must submit their FAFSA. The loans are based on the demonstrated financial need instead of the student’s credit score and history. However, because there is a limit on how much money the federal government can loan each student, federal student loans usually can’t cover all college expenses; reason why they must be combined with other forms of financial aid – including private loans and grants.


Grants are basically free money because they don’t have to be repaid. There are two kinds of grants: need-based grants, and grants-for-service, which are awarded for a specific purpose. Need-based grants are awarded to students based on their FAFSA, and grants-for-service are awarded on the condition that the student agrees to predetermined terms, usually meant to address issues in specific fields.

Grants can be awarded by the federal government, by the states, and private organizations. There are three federal grants: the Federal Pell Grant, awarded since 1972, the Federal Supplemental Educational Opportunity Grant, awarded on a first come first serve basis to students with great financial need, and the Federal TEACH Grant, an award-for-service grant for students agreeing to teach in certain fields after graduation. State grants, usually aimed at helping low-income students, women, and minorities, differ from one state to another, but like with the federal grants, there are need-based, as well as award-for-service grants. Private grants, on the other hand, are usually awarded by companies and organizations to students pursuing specific degrees and meeting specific requirements.