Federal vs. Private Student Loans

FullSizeRender By Tara Carter

Student loans are on the minds of many around this time of year as prospective students and their parents face the decision to either apply for federal, or private student loans to pay for tuition and other college fees.

In most cases, it’s better to use federal student loans due to their low interest rates, deferment plans, and multiple repayment options. However, for others these loans may not cover all the expenses needed for the academic year. There are 4 different types of federal loans available for borrowers: for example, direct subsidized loans, direct unsubsidized loans, direct PLUS loans, and Federal Perkins Loans.

Private loans, on the other hand, typically don’t offer as many options and tend to be more expensive. Here is a comparison of the similarities and differences between the two:

  • Repaymentcompare-643305_1280


Federal: For federal loans repayment isn’t required to start until you graduate, discontinue school, or change your enrollment status to less than a half-time student. Typically, full-time students are enrolled in at least 12 credits worth of courses, and half-time students are enrolled in less than 6 credits.


Private: Many private student loan lenders require repayment to begin while students are still enrolled in classes.


  • Interest Rates


Federal: Interest rates are fixed, and are often lower than private loans and credit card interest rates. Depending on your expected family contribution (EFC), you could qualify for a subsidized loan where the government pays the interest while you’re in school on at least a half-time basis.[i]


Private: These loans have variable interest rates, which could ultimately lead to a significant increase in your total repayment. Private loans also do not offer subsidized loans, which means all the interest is left up to the borrower to pay off.


  • Credit


Federal: Federal loans do not require a credit check to be approved for a student loan, unless you are applying for a PLUS loan.


Private: For private loans, you may be required to have an established and decent credit history to be approved for a student loan.

  • Forgiveness


Federal: There are some federal programs that will forgive portions of your loans depending on your profession.


Private: Private loans do not offer forgiveness programs, and you will likely be responsible for complete repayment of your loan.







[i] https://studentaid.ed.gov/sa/types/loans/federal-vs-private

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