Getting a Student Loan USA | Differences between federal and private student loans?

When you are exploring ways to pay for college, you should consider the differences between federal and private sector loans.

When it comes to paying for college, career school, or graduate school, federal student loans offer several advantages over private student loans.

If you apply for financial aid, your school will likely include student loans as part of your financial aid package. It’s important to understand what types of loans you are offered. Generally, there are two types of student loans:

• Federal student loans: These loans are funded by the federal government.
• Private student loans: These loans are nonfederal loans, made by a lender such as a bank, credit union, state agency, or a school.

---

If you need to borrow money to pay for college or career school, start with federal student loans.

Federal student loans are:

• Direct Subsidized Loans and Direct Unsubsidized Loans:

Subsidized and unsubsidized loans are federal student loans for eligible students to help cover the cost of higher education at a four-year college or university, community college, or trade, career, or technical school. The U.S. Department of Education offers eligible students at participating schools Direct Subsidized Loans and Direct Unsubsidized Loans. (Some people refer to these loans as Stafford Loans or Direct Stafford Loans.)

• Direct PLUS Loans

The U.S. Department of Education makes Direct PLUS Loans to eligible borrowers through schools participating in the Direct Loan Program.

• Here’s a quick overview of Direct PLUS Loans:
  
• The U.S. Department of Education is your lender.
• You must not have an adverse credit history.
• The maximum loan amount is the cost of attendance (determined by the school) minus any other financial aid received.

• Federal Perkins Loans.

Loans made through the Federal Perkins Loan Program, often called Perkins Loans, are low-interest federal student loans for undergraduate and graduate students with exceptional financial need.

• Here’s a quick overview of Federal Perkins Loans:
  
• Available to undergraduate, graduate, and professional students with exceptional financial need.
• Interest rate for this loan is 5%.
• Not all schools participate in the Federal Perkins Loan Program. You should check with your school's financial aid office to see if your school participates.
• Your school is the lender; you will make your payments to the school that made your loan or your school’s loan servicer.
• Funds depend on your financial need and the availability of funds at your college.

What are the differences between federal and private student loans?

Federal student loans include many benefits (such as fixed interest rates and income-driven repayment plans) not typically offered with private loans. In contrast, private loans are generally more expensive than federal student loans.
The chart below provides a summary of the differences.

Federal Student Loans	Private Student Loans
You will not have to start repaying your federal student loans until you graduate, leave school, or change your enrollment status to less than half-time.	Many private student loans require payments while you are still in school.
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.	Private student loans can have variable interest rates, some greater than 18%. A variable rate may substantially increase the total amount you repay.
Undergraduate students with financial need will likely qualify for a subsidized loan where the government pays the interest while you are in school on at least a half-time basis.	Private student loans are not subsidized. No one pays the interest on your loan but you.
You don’t need to get a credit check for most federal student loans (except for PLUS loans). Federal student loans can help you establish a good credit record.	Private student loans may require an established credit record. The cost of a private student loan will depend on your credit score and other factors.
You won’t need a cosigner to get a federal student loan in most cases.	You may need a cosigner.
Interest may be tax deductible.	Interest may not be tax deductible.
Loans can be consolidated into a Direct Consolidation Loan.  Learn about your consolidation options.	Private student loans cannot be consolidated into a Direct Consolidation Loan.
If you are having trouble repaying your loan, you may be able to temporarily postpone or lower your payments.	Private student loans may not offer forbearance or deferment options.
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.
There is no prepayment penalty fee.	You need to make sure there are no prepayment penalty fees.
You may be eligible to have some portion of your loans forgiven if you work in public service. Learn about our loan forgiveness programs.	It is unlikely that your lender will offer a loan forgiveness program.
	The Consumer Financial Protection Bureau's private student loan ombudsman may be able to assist you if you have concerns about your private student loan.