Key Takeaways
Current federal student loans interest rates (until July 1, 2027) are fixed at 6.52% for undergraduate Direct Subsidized Loans and Direct Unsubsidized Loans, 8.07% for graduate and professional Direct Unsubsidized Loans, and 9.07% for Direct PLUS Loans.
Federal student loans have greater protections than private ones, including forbearance, forgiveness, and deferment options.
Private student loans can help bridge potential financing gaps. Make sure to shop around to find the best terms for you.
If you've exhausted your scholarships, grants, and other financial aid options but still have college costs to cover, student loans may be your next option. The question is: Should you choose federal or private student loans?
In most cases, federal student loans should be your first option because they typically offer more flexible repayment options and borrower protections. However, federal loans may not cover your full funding gap, and private student loans can help pay the remaining balance.
Keep reading to learn how federal and private student loans compare, including their interest rates, repayment options, eligibility requirements, and borrower protections, so you can make a more informed decision.
What Is the Main Difference Between Federal and Private Student Loans?
One of the main differences between federal and private student loans is the lender. Federal student loans are issued by the U.S. Department of Education, through Federal Student Aid, and their terms and borrower benefits are established by federal law.
Private student loans, on the other hand, are offered by financial institutions such as banks and credit unions, which set their own eligibility requirements and loan terms.
Both types of student loans can help pay for eligible college expenses. However, they also differ in several important areas, including credit requirements, interest rates, repayment options, and access to loan forgiveness or other borrower protections.
| Feature | Federal student loans | Private student loans |
|---|---|---|
| Lender | U.S. Department of Education | Banks, credit unions, and other private lenders |
| Credit and cosigner | Most don't require a credit check or cosigner. | Many require a credit check, which is used to determine your interest rate. You may also need a cosigner, depending on your credit history. |
| Interest rates | Have fixed interest rates, meaning the rate does not change over the life of the loan. For loans disbursed on or after July 1, 2026, rates sit at 6.52%, 8.07%, and 9.07% depending on the loan type. | May be fixed or variable. Rates typically range from 2.50% to 17.99% and depend on your credit history. |
| Repayment options | Several different repayment plans are available, including plans that set monthly payments based on your income. | Vary by lender and may be less flexible. Check with your lender for specific repayment options. |
| Forbearance and Deferment | Offer deferment and forbearance options that may let you temporarily pause or reduce your payments if you qualify. | Availability varies by lender. |
| Forgiveness | Some federal loans may qualify for forgiveness, cancellation, or discharge through programs such as Public Service Loan Forgiveness. | Most private lenders do not offer loan forgiveness. |
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How Do Federal and Private Student Loan Interest Rates Compare?
Interest rates on federal student loans are set by federal law, and the rate you get typically depends on when the loan was first disbursed. For loans first disbursed on or after July 1, 2026, and before July 1, 2027, rates are set at 6.52%, 8.07%, or 9.07%, depending on the loan type.
Federal student loan interest rates are also fixed. So, if you received an undergraduate Direct Subsidized Loan in August 2020, your interest rate would remain fixed at 2.75% until you paid it off — even though the rate for the same type of loan is now 6.52%.
Interest rates on private student loans, on the other hand, can be fixed (remain the same for the life of the loan or variable (change based on market conditions). They also depend on your credit history, income, and other factors.
While these loans often advertise attractive offers, such as rates as low as 2.19%, remember that the lowest rates are generally available only to people with strong credit. That said, if you recently graduated high school, you may not have enough credit history to qualify for the lowest available rate. You may also need to apply with a cosigner, such as your parents.
How Do Eligibility and Borrowing Limits Differ?
Federal and private student loans have different eligibility requirements, cosigner rules and borrowing limits. Here's an overview of those factors:
Federal Loan Eligibility Requirements
To qualify for federal student loans, you generally need to complete the Free Application for Federal Student Aid (FAFSA), be a U.S. citizen or eligible noncitizen and enroll in an eligible degree or certificate program.
Here's a helpful fact: There is no income cut-off for completing the FAFSA or being considered for federal student aid. However, you'll need to demonstrate financial need to qualify for Direct Subsidized Loans, but not for Direct Unsubsidized Loans.
Federal Loan Borrowing Limits
There are federal loan limits that determine how much you can borrow each year and over the course of your education. This limit varies based on factors such as your year in school, dependency status, and whether you're an undergraduate, graduate or professional student.
Beginning July 1, 2026:
Parents can borrow up to $20,000 per year through Parent PLUS Loans, with a total limit of $65,000 per student.
Graduate students can borrow up to $20,500 per year, with a $100,000 graduate borrowing limit.
Students in qualifying professional programs can borrow up to $50,000 per year, with a $200,000 graduate and professional borrowing limit.
Most students are generally subject to a $257,500 lifetime limit for federal loans taken out across undergraduate, graduate and professional programs. Parent PLUS Loans don't count toward this limit.
Some students who began their programs before July 1, 2026, may temporarily remain under the previous borrowing rules.
Private Loan Eligibility Requirements
Private student loans lenders typically review your credit history, income and existing debts to determine whether you qualify and what interest rate you'll receive.
According to Experian, you'll likely need a credit score around mid-600s or higher, although requirements vary by lender. Lenders may also look at your income and debt-to-income ratio, which compares your monthly debt payments with your monthly income.
Since students have limited credit histories and may have trouble qualifying on their own, applying with a creditworthy cosigner can be a good option to improve chances of approval and qualify for a lower interest rate.
Your lender will also typically require your school and degree program information to confirm your enrollment and cost of attendance — which generally includes tuition, fees, housing, food, books, supplies, and personal costs. This process is known as school certification. The timeline varies by school, but it often takes several weeks, so it's best to apply well before your tuition is due.
Private Loan Borrowing Limits
Private student loan limits vary by lender and may also depend on whether you're an undergraduate, graduate or professional student. Some lenders set annual or lifetime borrowing limits, while others allow you to borrow up to your cost of attendance.
However, note that private lenders generally subtract scholarships, grants, federal loans and other financial aid you receive from your cost of attendance. For example, if your cost of attendance is $30,000 and you receive $22,000 in other aid, you may be able to borrow only up to the remaining $8,000.
How Do Federal and Private Student Loan Repayment Options Compare?
The short answer is that federal student loans offer considerably more repayment options than private loans.
For example, Direct Subsidized and Direct Unsubsidized Loans generally come with a six-month grace period after you graduate, leave school or drop below half-time enrollment (usually six credits).
Below, we'll go over all of the options available for each type of loan:
Federal Loan Repayment Options
Federal student loans offer two repayment options: fixed repayment and income-driven repayment plans.
Fixed repayment plans
Standard: You'll make the same monthly payment throughout the repayment period. Most loans are repaid within 10 years, although Direct Consolidation Loans may have terms of 10 to 30 years. This plan is available for Direct Subsidized and Unsubsidized Loans, PLUS Loans and Direct Consolidation Loans.
Tiered: Your monthly payment stays the same, but your repayment term may be 10, 15, 20 or 25 years, depending on your total loan balance. This plan is available to borrowers with a Direct Loan disbursed on or after July 1, 2026.
Graduated: Payments start lower and typically increase every two years. Most loans are repaid within 10 years, while Consolidation Loans may have terms of 10 to 30 years. This plan is available for eligible Direct Subsidized and Unsubsidized Loans, PLUS Loans and Consolidation Loans.
Extended: You can choose fixed or graduated payments and repay the loan over as long as 25 years. To qualify, you generally need more than $30,000 in outstanding Direct Loans or more than $30,000 in outstanding FFEL Program Loans. The plan is available for eligible Direct Subsidized and Unsubsidized Loans, PLUS Loans and Consolidation Loans.
Income-driven repayment (IDR) plans
Income-driven repayment, or IDR, plans base your monthly payment on your income and family size or number of dependents. For some borrowers, payments can be as low as $0.
Your payment is generally recalculated each year through a process called recertification. Depending on the plan, any balance left after 20, 25 or 30 years of qualifying payments may be discharged — that is, forgiven.
Repayment Assistance Plan (RAP): Your payment ranges from 1% to 10% of your adjusted gross income, depending on how much you earn, and is reduced by $50 per month for each dependent you have. Any remaining balance may be discharged after 30 years of qualifying payments.
IBR Plan: Your payment is based on your discretionary income — what's left over after covering your basic necessities. Borrowers who first took out loans on or after July 1, 2014, generally pay 10% of their discretionary income for up to 20 years. Those who borrowed earlier generally pay 15% for up to 25 years.
ICR Plan*: Your monthly payment is based on your income and is capped at the lower of two amounts: 20% of your discretionary income or a payment calculated over 12 years. Any balance left after 25 years of qualifying payments may be discharged.
PAYE Plan*: Your monthly payment is generally 10% of your discretionary income. Any balance left after 20 years of qualifying payments may be discharged. This plan is available only to certain borrowers with eligible Direct Loans.
*Note: PAYE and ICR are being phased out. Borrowers with eligible loans taken out before July 1, 2026, may still use these plans temporarily, but they'll need to move to another eligible plan by July 1, 2028. Borrowers who receive a new Direct Loan on or after July 1, 2026, generally cannot enroll in PAYE or ICR.
Private Loan Repayment Options
There's no standard repayment or assistance program for private student loans. Your options depend on the lender and the terms of your loan agreement.
Some lenders may offer autopay interest rate discounts, in-school deferment or temporary payment relief. Others may allow you to postpone payments while continuing your education, serving in the military, or participating in certain volunteer programs.
However, these options are generally not as flexible as those available for federal student loans.
How Do Borrower Protections Compare?
Federal student loans generally offer stronger borrower protections than private loans. Depending on your situation, you may be able to temporarily pause your payments or have some or all of your debt forgiven, canceled or discharged.
Federal Student Loan Protections
Forgiveness and Discharge: Federal student loans may be forgiven or discharged in certain situations, meaning you may no longer have to repay some or all of your balance. For example, Public Service Loan Forgiveness may erase the remaining balance on eligible Direct Loans after you make 120 qualifying payments while working full time for an eligible government or nonprofit employer. Other discharge options may be available if your school closes or certain cases involving death or bankruptcy, for instance.
Forbearance: Forbearance lets you temporarily pause or reduce your federal student loan payments. During this period, Interest continues to accrue so your loan balance may grow. You may qualify if you're experiencing a temporary hardship, such as financial difficulties or medical expenses. Some types of forbearance are approved at your loan servicer's discretion, while others must be granted if you meet the requirements.
Deferment: It also lets you temporarily pause or reduce your monthly payments. The main difference compared to forbearance is that interest may not add up on certain types of federal loans during this period. In most cases, your federal loans are automatically placed into deferment while you're enrolled at least half time at an eligible school. You may also qualify for deferments for circumstances such as unemployment, economic hardship, cancer treatment or qualifying military service.
Private Student Loan Protections
Any relief options available for private student loans depend on the lender and the terms of your loan.
Some private lenders may let you temporarily pause or reduce payments if you experience financial hardship, return to school or enter military service. However, deferment and forbearance policies vary, and interest typically continues to add up while payments are paused.
Some lenders may cancel the debt if the borrower dies or becomes permanently disabled, but this also depends on the lender's policy.
Before borrowing, review the loan agreement to see what hardship assistance, cosigner release and discharge options are available.
Federal or Private Student Loans: Which One Is Right For You?
As we've discussed throughout this article, federal student loans generally offer fixed interest rates that don't depend on your credit, more flexible repayment options and stronger borrower protections than private loans. That's why most borrowers should use available scholarships, grants and federal student loans before turning to private student loans.
However, there's no one-size-fits-all solution to financing your education, and private student loans can help fill a funding gap after you've used all other aid options. Additionally, graduate or professional students and working adults with strong credit may find favorable private loan offers that aligns with their financial goals.
Federal loans may be a better fit when:
You have a limited credit history or don't have a creditworthy cosigner.
You're an undergraduate student borrowing for the first time.
You want repayment options that can be adjusted based on your income.
You want access to federal forgiveness, deferment or forbearance options.
You prefer a fixed interest rate that isn't based on your credit.
Private loans may be worth considering when:
You have strong credit (or a creditworthy cosigner) and qualify for a lower rate compared to federal ones.
You've reached your federal student loan limits.
You still have a funding gap after using scholarships, grants and federal student loans.
Ultimately, the best loan for you is the one that covers your remaining costs without taking on more debt or risk than necessary.
Frequently Asked Questions About Federal and Private Student Loans
You can refinance a federal student loan with a private lender. However, this will convert it into private debt. That said, your new interest rate and loan terms will depend on your credit, income and existing debts. You'll also permanently lose access to federal benefits, including income-driven repayment plans, federal forgiveness programs, and standardized deferment and forbearance options.
