Federal vs. Private Student Loans


When taking out your student loans, you will have many different choices when it comes to the loan provider. Loan providers are typically divided into two different categories – federal and private student loans. If you’re taking out your student loans for the first time, you may be wondering what the difference is. Here’s what you need to know about these two student loan options. 


Federal loans are provided by the US Department of Education. To apply for them, you will need to fill out a government FAFSA form, and then your school will ultimately determine how much student aid you receive. Private loans are offered by a variety of different non-government providers. Typically, they are offered by banks and credit unions, but you may also find student loans offered by independent state programs. 

Interest Rates

The interest rates of federal loans differ from those of private loans. The interest rates for federal student loans are fixed at 4.45 percent for undergraduates and 6 percent for graduate students. The rates for private loans vary by institution but are generally higher than federal loans. The average interest rate for private loans is around eight percent. 


Qualifying for these two different types of loans can vary as well. There is a limited amount of financial aid available to give, and your financial need can factor into your qualification. Alternatively, qualification for private loans varies by institution. However, your financial need typically doesn’t factor into the approval process. However, private loan providers usually will look at your credit score when you apply for a loan. If you don’t have a solid credit history, you will likely need a co-signer to take out student loans. 


Repayment is similar for both types of loans. You will need to start paying them back shortly after you graduate or stop attending school. However, federal student loans will sometimes offer student loan forgiveness, particularly for people in specific industries. While private loans usually won’t offer student loan forgiveness, they may offer delayed repayment plans for those who are struggling financially. Before signing any student loans, be sure you understand the requirements for repayment so you can plan ahead.