Private vs. Federal Student Loans

Private vs. Federal Student Loans

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

Federal Student Loans

Federal student loans are made and funded directly by the federal government. To apply, you need to complete the Free Application for Federal Student Aid (FAFSA). There are a few types of federal loan programs, and they are awarded based on set eligibility criteria, including financial need. Direct Unsubsidized and Direct Subsidized Loans (also known as Stafford loans) are the most common types of federal loans made to undergraduate and graduate students. They comprise over 70% of annual student loans issued. In addition, Direct PLUS loans are available to qualified graduate students and parents; these are commonly known as Grad PLUS and Parent PLUS. Direct PLUS loans (Grad PLUS and Parent PLUS) have higher interest rates and a higher disbursement fee than Direct Unsubsidized and Subsidized Loans. Interest rates and fees on all federal loans are set at the start of each academic year and remain fixed for the life of the loan. Federal loans come with a standard repayment schedule. Direct Unsubsidized and Subsidized Loans, and Direct PLUS loans for graduate students (Grad PLUS) offer a wide range of repayment assistance options including forgiveness for qualified borrowers, forbearance, deferments, and Income-Based Repayment (IBR) or Pay As You Earn (PAYE and REPAYE) plans that tailor the monthly payments to your income level. Direct PLUS loans for parents come with fewer repayment assistance options. For more details on eligibility criteria, repayment assistance, and current rates, visit

Private Student Loans

Private student loans, sometimes referred to as non-federal or alternative loans, are made and funded by private lenders. Private student loans require a credit and income review to determine an individual’s anticipated ability to repay the loan. Since many students have limited credit history and income, private student loans made to students typically require a cosigner. A cosigner is often a parent or other family member who has established credit and income. The cosigner agrees to take equal responsibility to repay the loan if the student borrower is unable. Some private lenders also offer parent loans, which are made to a parent or guardian who is helping a student pay for school; the student is not legally responsible to repay a parent loan. Private loan terms, including interest rates and fees, vary by lender and usually are determined based on your credit history (and potentially other factors).  When it comes to repayment after graduation, many private student loan lenders will offer payment assistance if it’s needed, but the available options are more limited than federal loans. For example, private lenders typically cannot offer income-contingent repayment plans or loan forgiveness.


Because of the low fixed rates and repayment assistance programs that are available, it’s generally best for students to exhaust their federal Direct Unsubsidized and Subsidized Loans before considering private student loans. There are limits to how much you can borrow under those Direct Loan programs though. If those federal funds are not enough to cover the cost of attendance, and you are considering a Direct PLUS loan (as a graduate student or parent), you may want to consider your private loan options before you commit. If you have a strong credit history, you may be able to save with a private loan vs. a Direct PLUS loan. Just make sure you review the benefits – such as public service forgiveness – that are unique to the federal program before you make your final decision.

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

Federal student loans are made and funded directly by the federal government. To apply, you need to complete the Free Application for Federal Student Aid (FAFSA).

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College Ave Student Loans products are made available through either Firstrust Bank, member FDIC or Nationwide Bank, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.

Information advertised valid as of 07/13/2018. Variable interest rates may increase after consummation.