Federal Loans Vs. Private Loans
Federal student loans include many benefits (such as fixed interest rates and income-based repayment plans) not typically offered with private loans. In contrast, private loans are generally more expensive than federal student loans.
The list below provides a summary of the differences.
Federal Student Loans
- You will not have to start repaying your federal student loans until you graduate, leave school, or change your enrollment status to less than half-time.
- The interest rate is fixed and is often lower than private loans—and much lower than some credit card interest rates. View the current interest rates on federal student loans.
- Undergraduate students with financial need will likely qualify for a subsidized loan where the government pays the interest while you are in school on at least a half-time basis.
- You don’t need to get a credit check for most federal student loans (except for PLUS loans). Federal student loans can help you establish a good credit record.
- You won’t need a cosigner to get a federal student loan in most cases.
- Interest may be tax deductible.
- Loans can be consolidated into a Direct Consolidation Loan.
- If you are having trouble repaying your loan, you may be able to temporarily postpone or lower your payments.
- There are several repayment plans, including an option to tie your monthly payment to your income.
- There is no prepayment penalty fee.
- You may be eligible to have some portion of your loans forgiven if you work in public service.
- Free help is available at 1-800-4-FED-AID and on studentaid.ed.gov.
Private Student Loans
- Many private student loans require payments while you are still in school
- Private student loans can have variable interest rates, some greater than 18%. A variable rate may substantially increase the total amount you repay.
- Private student loans are not subsidized. No one pays the interest on your loan but you.
- Private student loans may require an established credit record. The cost of a private student loan will depend on your credit score and other factors.
- You may need a cosigner.
- Interest may not be tax deductible.
- Private student loans cannot be consolidated into a Direct Consolidation Loan.
- Private student loans may not offer forbearance ordeferment options.
- You should check with your lender to find out about your repayment options.
- You need to make sure there are no prepayment penalty fees.
- It is unlikely that your lender will offer a loan forgiveness program.
- The Consumer Financial Protection Bureau's private student loan ombudsman may be able to assist you if you have concerns about your private student loan.
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