Federal VS Private Student Loans

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Financial aid award packages generally come with a lot of questions, especially regarding loans. You might have come across different loan options when doing your own research. One of the most frequent curiosities that people have when exploring their options is to investigate private loans. How are they different from federal loans? Should I take out a private loan to cover the cost of my tuition?

First, it’s important to understand exactly what federal and private student loans are. Federal loans are funded by the federal government. Private loans are non-federal loans, made by lenders such as banks, credit unions, state agencies, or schools. But aside from whether or not they come from the government, there are some fundamental differences between the two. Understanding how they differ before borrowing is critical. Let’s weigh the pros and cons:


  • You do not have to start repaying your federal student loans until after you graduate.
  • Many private loans require payments while you’re still in school.

Interest Rates

  • With a federal loan, your interest rate will be fixed. You can learn about the different types of interest rates offered here.
  • Private loans often have variable interest rates, some as high as 18%. This can substantially increase the total amount you have to pay over the years.


  • Undergraduate students with financial need will be able to qualify for subsidized loans, where the government will pay the interest on your loans.
  • Private loans are not subsidized, so nobody pays the interest but you.

Credit Checks

  • Most federal loans require no credit check, but paying them off will help you build a good credit score.
  • Private student loans may require you to have an established credit report. The cost of your loan may be dependent on this.


  • You won’t need a cosigner to get a federal student loan in most cases.
  • You may need a cosigner to get a private student loan.

Loan Forgiveness

  • You may be eligible to have a portion of your loans forgiven if you work in public service.
  • It is unlikely that your lender will offer forgiveness on your private student loan.

So what’s the consensus? Your best bet is to take out private loans to supplement your federal loans, but never to replace them. If you do take out private loans (or any kind of loan for that matter), make sure you know exactly what you’re getting into. Financial aid should help you, not hinder you. If you have any more questions, Frank is always here to help.