ACCC Explains the Difference Between Federal and Private Student Loans

National nonprofit American Consumer Credit Counseling shares important facts on the differences between federal and private student loans.

Boston, MA – October 25, 2016

Federal versus Private Student LoansMost college students must begin the process of paying back student loans within six month of graduation, and it’s vital that they know exactly what type of loans they have. There are two types of student loans, federal and private.

A federal loan, which is either subsidized or unsubsidized, is based on the student’s financial need and comes with a fixed interest rate. A private loan on the other hand is not funded or subsidized by the federal government. Instead, they are funded by banks, credit unions, or other types of lenders

“It is important that consumers get all the information about the types of loans they have so that their student loan debt can be paid off responsibly and realistically,” said Steve Trumble, President and CEO of American Consumer Credit Counseling, which is based in Newton, MA. “While soaring student debt continues to be a challenge for millions of Americans, understanding the different types of student loans and repayment requirements can help make the process more manageable.”

According to LendEDU 70 percent of college graduates are leaving school with just over $37,000 in debt. In LendEDU’s survey of 477 students, almost 93 percent do not know the difference between subsidized and unsubsidized loans. Of these respondents, only 6percent know their repayment terms.

In an effort to help educate consumers, American Consumer Credit Counseling provides information on both federal and private student loans.

Federal Student Loans:

  • Prior to each school year, the government informs every school the amount of federal money it will receive to allocate to its students.
  • Federal loans come with fixed interest rates.
  • Students need to reapply for their federal loans every year.
  • There are three types of federal loans: Stafford loans, which are capped at $31,000; Perkins loans, which are capped at $27,500; and PLUS loans; Parent PLUS or Grad Plus loans.
  • A subsidized Federal Loan is based on the student’s financial need when applying through Free Application for Federal Student Aid (FAFSA). With this loan, the U.S. Department of Education pays for the interest acquired while the student is in school and allows a six-month grace period upon graduation.
  • An unsubsidized Federal Loan is when students begins acquiring interest beginning on the date of their first loan disbursement. Although they are accruing interest, students are not required to pay the interest until graduation and the amount acquired is added to the principle loan amount.
  • Advantage: Federal loans include benefits such as income-driven repayment plans and fixed interest rates.
  • Disadvantage: The amount a student can borrow is set by Congress, so the loan may not cover the entire cost of tuition.

Private Student Loans:

  • Private loans have variable interest rates, meaning that the rate can change at any time, making it harder to pay off.
  • Private loans do not have special programs for unemployed or low-income borrowers.
  • Advantage: The total amount is not limited which means a student can take out as much as they need to cover the cost of tuition.

Disadvantage: Private loans are generally more expensive than Federal loans and interest rates can often change. Eligibility depends on the student’s credit score which is why most lenders require a cosigner.

ACCC is a 501(c)3 organization that provides free credit counseling, bankruptcy counseling, and housing counseling to consumers nationwide in need of financial literacy education and money management. For more information, contact ACCC:

  • For credit counseling, call 800-769-3571
  • For bankruptcy counseling, call 866-826-6924
  • For housing counseling, call 866-826-7180
  • Or visit us online at

About American Consumer Credit Counseling

American Consumer Credit Counseling (ACCC) is a nonprofit credit counseling 501(c)(3) organization dedicated to empowering consumers to achieve financial and credit management through credit counseling, debt management, bankruptcy counseling, housing counseling, student loan counseling and financial education. As experts in debt and credit management, ACCC believes that many of the same principles applied to recovering from significant credit card debt can be applied to student loan assistance and repaying student loan debt. ACCC’s student loan counselors help consumers sift through the confusion of student debt relief options in order to make better informed decisions regarding repayment. ACCC also provides prospective, current, and past students and their families with the information and resources necessary to make the best possible personal finances decisions about their college education and to help successfully maneuver the repayment process without relying on credit card debt or additional loans. ACCC holds an A+ rating with the Better Business Bureau and is a member of the National Foundation for Credit Counseling® (NFCC®).  For more information or to access free financial education resources, log on to or visit