The Difference Between Federal And Private Loans

Q: What’s the difference between federal and private student loans? I am getting ready to apply for college, and want to know why federal student loans should be favored over private student loans?

A: The biggest difference between federal student loans and private student loans are interest rates, repayment options, and deferment options. Federal student loans, through a bank, lender or the Department of Education, are funded and regulated by the federal government, and can offer lower interest rates, fixed interest rates, better repayment options and more flexible deferment options (in comparison to private student loans). Unlike private student loans for college, federal student loans are need-based loans, so they are not based on your credit.

Private student loans or alternative student loans for college, are not subsidized by the federal government, and therefore are not regulated as closely as federal student loan programs. Private student loans are based on your credit score, interest rates are variable, and it can be difficult to get a consolidation loan for private student loans since many lenders are not offering this option anymore. Most financial aid experts will recommend that you do not consider a private student loan until after you have exhausted all federal financial aid options. To learn more about federal student loans for college, please visit our Federal Student Loans section. To learn more about private student loans for college, please visit our Private Student Loans section.