Why Are Private Student Loans More Expensive Than Federal

Q: Why are private student loans more expensive than federal student loans?

A: The government does not set the interest rates, loan limits, terms, and/or conditions of private student loans, banks and lenders do. It is because of this that private student loans can typically carry higher variable interest rates, and do not offer as many repayment options compared to federal student loans. The interest rates and fees of private student loans are based on your credit history or a cosigner’s credit history, which means that borrowers with bad credit histories will most likely receive more expensive private student loans. Federal student loans, are not based on credit, but rather on financial need.

Private student loans, are not be eligible for the same types of discharge, repayment, deferment, and forbearance options that are available for federal student loans. This is why it’s important to make sure you have exhausted all of your federal financial aid options (as well as scholarships and grants) before you apply for a private student loan. 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.