What's the difference between federal and private student loans?

Student loans from the federal government are generally better than ones from other lenders. Most federal loans come with lower, fixed interest rates and more flexible repayment options.
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Most student loans fall into one of two categories:

  • Federal loans, which are funded or guaranteed by the federal government
  • Private loans (sometimes called "alternative" loans), which are nonfederal loans funded by banks or other lenders such as credit unions, state agencies, or schools.

Federal loans offer many advantages over private loans, including lower, fixed interest rates and more flexible repayment options.

The following chart, adapted from the U.S. Department of Education website, summarizes the important differences between federal and private student loans.

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 on all federal loans made after July 1, 2006 is fixed and is often lower than private loans. 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. 


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 (for most loans) 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. 

It is unlikely that your lender will offer a loan forgiveness program.

Free help is available at 1-800-4-FED-AID.

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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