Federal vs Private Loan

What are the differences between federal and private student loans?

Federal student loans are made by the government, with terms and conditions that are set by law, and include many benefits (income-driven repayment plans) not typically offered with private loans.

In contrast, private loans are made by private organizations such banks, credit unions, and state-based or state-affiliated organizations, and have terms and conditions that are set by the lender. Private student loans can be less expensive than Federal Loans depending on ones credit criteria and that Private loans do not have an origination fee.

The chart below provides a summary of the differences.

Subject	Federal Student Loans	Federal PLUS Loans	Private Student Loans*
When payments become due	Payments aren’t due until after you graduate, leave school, or change your enrollment status to less than half-time.	You (the parent) can choose to put off payments until the student you borrowed for graduates, leaves school, or changes enrollment status to less than half-time.	You (the parent) can choose to put off payments until the student graduates, leaves school, or changes enrollment status to less than half-time.
Interest rates	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.	The interest rate is fixed and may be lower than private loans—and much lower than some credit card interest rates. View the current interest rates on federal student and parent loans.	Private student loans can have variable or fixed interest rates, which may be higher or lower than the rates on federal loans depending on your circumstances.
Origination Fee	Stafford loan –1.057% Amount taken from the requested loan at disbursement.	PLUS loan – 4.228% Amount taken from the requested loan at disbursement.	NONE
Credit check	You don’t need to get a credit check to qualify for federal student loans (except for PLUS loans). For PLUS loans, we will check your credit before determining whether you are eligible. Learn how someone with an adverse credit history may qualify for a PLUS loan.	We will check your credit before determining whether you are eligible. Learn how someone with an adverse credit history may qualify for a PLUS loan.	Private student loans often require an established credit record or a cosigner.
Tax benefits	Interest may be tax deductible.	Interest may be tax deductible.	Interest may be tax deductible.
Consolidation and refinancing	Loans can be consolidated into a Direct Consolidation Loan.	Loans can be consolidated into a Direct Consolidation Loan.	Private student loans cannot be consolidated into a Direct Consolidation Loan but may be refinanced.
Postponement options	If you are having trouble repaying your loan, you may be able to temporarily postpone or lower your payments.	If you are having trouble repaying your loan, you may be able to temporarily postpone or lower your payments.	You should check with your lender to find out about options for postponing or lowering your loan payments.
Repayment plans	There are several repayment plans, including an option to tie your monthly payment to your income.	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.
Prepayment penalties	There is no prepayment penalty fee.	There is no prepayment penalty fee.	There is no prepayment penalty fee.
Loan forgiveness	You may be eligible to have some portion of your loans forgiven if you work in public service. Learn about our loan forgiveness programs.	You may be eligible to have some portion of your loans forgiven if you work in public service. Learn about our loan forgiveness programs.	Although many private lenders do not offer loan forgiveness programs, some student loans from state agencies can be forgiven in certain circumstances.
Where to get help	Contact your loan servicer.	Contact your loan servicer.	Contact your loan servicer first. If you have difficulty with your loan servicer contact the lender.

*Private loans differ by lender and by type of loan. Be sure you understand the terms of your loan, and keep in touch with your lender about any questions you may have.

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