Federal and Private Student Loans: What’s the Difference? (2024)

FAQs

Federal and Private Student Loans: What’s the Difference? ›

Generally, there are two types of student loans—federal and private. Federal student loans and federal parent loans: These loans are funded by the federal government. Private student loans: These loans are nonfederal loans, made by a lender such as a bank, credit union, state agency, or a school.

Federal student loans are generally recommended due to fixed interest rates, repayment flexibility and forgiveness options. However, if you require more funds than federal limits allow or have excellent credit, private loans might be more favorable with potentially lower rates or higher borrowing amounts.

When comparing federal loans vs private loans, the key difference is that federal loans are provided by the government and private loans are provided by banks, credit unions, and other financial institutions. Each has its own student loan eligibility criteria, application process, and terms and conditions.

You can identify your loan types by logging on to StudentAid.gov and selecting “My Aid” in the dropdown menu under your name. In the “Loan Breakdown” section, you'll see a list of each loan you received.

Federal loans offer lower fixed interest rates, more flexible repayment options, and are easier to access than private loans, which come with higher rates and less forgiving terms.

The Cons of Private Student Loans

Most private student loans do not offer income-driven repayment plans. Private student loans do not qualify for teacher loan forgiveness or public service loan forgiveness. Private student loans have limited options for financial relief when a borrower experiences financial difficulty.

The only times private student loans can currently be forgiven are in the cases of death or permanent disability—but even in those instances, discharge is typically dependent on your lender's policy.

The interest rate on a federal student loan is fixed and is typically lower than private loan rates. No credit check or cosigner is required to qualify for most federal student loans. Repayment doesn't begin until after you've left college or dropped below half-time enrollment.

Sallie Mae services private student loans for a variety of degrees, including undergrad, MBA, medical school, dental school and law school. A private loan with a lender like Sallie Mae covers up to 100 percent of your education costs, while federal loans come with borrowing caps that might not cover all your expenses.

$57,500 for undergraduates-No more than $23,000 of this amount may be in subsidized loans. $138,500 for graduate or professional students-No more than $65,500 of this amount may be in subsidized loans. The graduate aggregate limit includes all federal loans received for undergraduate study.

Do student loans go away after 7 years? ›

Do student loans go away after 7 years? While negative information about your student loans may disappear from your credit reports after seven years, the student loans will remain on your credit reports — and in your life — until you pay them off.

Generally, there are two types of student loans—federal and private. Federal student loans and federal parent loans: These loans are funded by the federal government. Private student loans: These loans are nonfederal loans, made by a lender such as a bank, credit union, state agency, or a school.

Must have a minimum credit score of 680. Must have a minimum credit history of 36 months. The student must be enrolled at least half-time in school. For Parent Loans, the borrower must meet Qualifying Dependent requirements (learn more).

Is it a good idea to get private student loans? Private student loans can be beneficial if you've exhausted federal loan options, need to cover expenses beyond federal limits or are ineligible for federal aid. If you have a strong credit score and income, you could secure a lower rate than on some federal loans.

PRO: They offer either fixed or variable interest rates and higher borrowing limits as long as you don't exceed the cost of attendance (less other financial aid). CON: You need to have good to excellent credit to qualify for a loan or the lender may require a co-signer.

Most financial aid is transferred directly to the school's account. This includes scholarships, grants, work-study paychecks, and loans. The funds from these financial aid avenues go directly to the school.

Access: Most students are eligible for federal student loans. There is no credit check (except for Parent PLUS loans). You will not need a co-signer, which private loans typically require. Lower interest rates: For most borrowers, federal loans offer lower interest rates than private loans.

Unlike federal student loans, private student loans require an established credit history. Lenders determine your eligibility, terms and student loan interest rate based in part on your credit score. This also means that all borrowers on the loan will need to submit to a hard credit inquiry.