Student loan vs bank loan - Research Paper Example

A majority of students applies for federal loans. However, there has been an increase in the number of students applying for bank student loans. The federal government determines the fixed interest rates of the federal student loans, while the lender determines bank student loan rates. The lender determines the fee to be charged on the principal amount, and this is based on the credit worthiness. Students who are apply for Stafford and Perkins loans to require credit worthiness but those applying for the PLUS loan require no previous adverse credit.

Considering the pros and cons of each option, it becomes challenging to decide whether students should apply for the federal student loans or the bank student loans. There have been price wars about the federal loans and bank loans for students as reported in the media in recent times (Andriotis 1). One may argue that the bank loans for students are actually cheaper than those being offered by the federal government. A few years back students preferred to have loans from the federal government because the rates were subsidized.

This means that in the case of a rise in the interest of the federal loan, the students’ rates were not affected. The students were allowed to pay the amount that was agreed. Many students preferred federal student loans because they are easy to qualify for compared to banks (Clark 1). The bar set for by the federal government understands the need of students to have the money to pay for education. Banks on the other hand need assurance they will get their money back. This means that to access money from a bank the qualifications are quite high.

The credit history of the student should be clean. The students should also have a repayment ability convincing enough to the bank before accessing a bank loan. This means the students should have a source of income, which is highly unlikely in most cases. The bank will require financial information on