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Federal and Private Student Loans: What’s the Difference?

This article is sponsored by Juno.

Navigating the world of student loans for graduate school can be daunting and confusing. What’s the difference between federal and private loans, and which is best for you as you plan for your MBA?

Federal Student Loans

All U.S. Citizens and Permanent Residents can access federal Direct Unsubsidized Loans and Grad PLUS Loans. In undergrad, federal loans were the cheapest and best loans available, but many are surprised by how much higher the rates are for graduate students. Direct Unsubsidized Loans have slightly lower rates and fees than Grad PLUS Loans, but they are only available for the first $20,500 that you borrow each academic year. The rest will be in Grad PLUS Loans, which have a higher interest rate and origination fee.

Although federal loans typically have higher interest rates than private loans, they do offer protections like Income-Driven Repayment Plans and Public Service Loan Forgiveness. Carefully consider these programs and if you will want access to them in the future when selecting your loan.

Private Student Loans

These loans are offered by private banks and lenders, and the interest rate offered to each student varies. Every private lender has their own unique underwriting process and standards for student loan applicants; these eligibility requirements help lenders decide whether to give an applicant a loan, and at what interest rate.

If you have a good credit score (650+) you will likely qualify for a loan, and the higher your score is, the better rate you will be offered. Adding a co-signer can also lower your rate.

Which Student Loan is Best for Me?

The choice of which loan(s) to consider depends on your existing debt, how much you need to borrow, your credit score, income, and risk tolerance. When comparing your options, it is important to consider the extra money that you will pay for federal loan protections and whether that is worth it to you. Juno has a calculator which makes it easy to compare all your options, and takes into consideration whether you plan to refinance after graduation.

MBA graduates tend to secure high incomes after graduation that make them ineligible for federal Income-Driven Repayment and Loan Forgiveness programs. If you think you likely won’t benefit from the federal protections, you may be overpaying for benefits that you do not get to take advantage of. For this reason, you should always research all your options.

Taking on student debt for business school can be scary, but evaluating all your options could mean saving thousands of dollars and achieving financial independence sooner.

Founded by two Harvard Business School students, Juno (formerly LeverEdge) is an initiative that utilizes the power of group buying to negotiate lower rates on new private student loans and refinancing existing loans. Folks who sign up have no obligation to take our negotiated deals, nor do we ever charge our members. It’s free to join and signing up simply adds your voice to the collective and gives you the option to take the deal when it’s ready. Our members have saved upwards of $26M on interest and fees using our deals over federal loans. Sign up in two minutes and drop co-founder Chris a line if you have any questions!

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