Federal or private student loans? Here’s what the difference is.

Core Insights - Earning a college degree significantly enhances career prospects, but many students incur debt, with 50% of bachelor's degree recipients graduating with student loan debt [1] Federal vs. Private Loans - Experts recommend exhausting federal loan options before considering private loans due to generally lower interest rates and better borrower protections [2][4] - Federal student loans account for over 90% of the $1.77 trillion in national student loan debt [3] - Federal loans have fixed interest rates, while private loans can have either fixed or variable rates [7][18] Types of Federal Loans - There are three main types of federal loans: Direct Subsidized, Direct Unsubsidized, and Parent PLUS loans, all with fixed interest rates [5][9] - Grad PLUS Loans will be eliminated as of July 1, 2026, due to the OBBB [5] Private Loans Overview - Private student loans constitute about 8% of the overall student loan market and are offered by banks and other financial institutions [6] - Private loans are credit-based, requiring borrowers to meet strict credit and income criteria [8][16] Key Differences Between Federal and Private Loans - Borrowing Limits: Federal loans have established caps, while private loans allow borrowing up to the total cost of attendance [11][13] - Credit and Income Criteria: Federal loans are easier to qualify for, with no minimum income requirements, while private loans require a FICO score of 670 or higher [14][16] - Interest Rates and Fees: Federal loans have fixed rates and may include disbursement fees, while private loans can have variable rates and typically do not have origination fees [17][18] - In-School Payment Plans: Federal loans do not require payments while in school, whereas private loans may require payments during this period [19][20] - Repayment and Hardship Options: Federal loans offer more borrower protections and options for deferment and income-driven repayment plans [20][21] - Loan Forgiveness Eligibility: Federal loans are often eligible for forgiveness programs, while private loans are not [21][23] Conclusion - Federal loans remain a favorable option for most students, especially undergraduates without established credit histories, while private loans may be necessary for those reaching federal borrowing limits [24][25]