If you apply for financial aid, your school will likely include student loans as part of your financial aid package. It�s important to understand what types of loans you are offered. Generally, there are two types of student loans:
The chart below provides a summary of the differences.
- Federal student 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.
If you need to borrow money to pay for college or career school, start with federal student loans.
Federal student loans are:- Direct Subsidized Loans and Direct Unsubsidized Loans;
- Direct PLUS Loans (for graduate and professional students or parents); and
- Federal Perkins Loans.
What are the differences between federal and private student loans?
Federal student loans include many benefits (such as fixed interest rates and income-driven repayment plans) not typically offered with private loans. In contrast, private loans are generally more expensive than federal student loans.The chart below provides a summary of the differences.
| Federal Student Loans | Private 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. | Many private student loans require payments while you are still in school. |
| 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. | Private student loans can have variable interest rates, some greater than 18%. A variable rate may substantially increase the total amount you repay. |
| 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. | Private student loans are not subsidized. No one pays the interest on your loan but you. |
| 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. | 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 won�t need a cosigner to get a federal student loan in most cases. | You may need a cosigner. |
| Interest may be tax deductible. | Interest may not be tax deductible. |
| Loans can be consolidated into a Direct Consolidation Loan. Learn about your consolidation options. | Private student loans cannot 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. | Private student loans may not offer forbearance or deferment options. |
| There are several repayment plans, including an option to tie your monthly payment to your income. | You should check with your lender to find out about your repayment options. |
| There is no prepayment penalty fee. | You need to make sure there are no prepayment penalty fees. |
| You may be eligible to have some portion of your loans forgiven if you work in public service. Learn about our loan forgiveness programs. | It is unlikely that your lender will offer a loan forgiveness program. |
| Free help is available at 1-800-4-FED-AID and on our websites. | 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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