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Federal vs. Private Student Loans

Generally, there are two types of student loans: federal student loans and private student loans.

Federal Direct Student Loans for Undergraduates

Made by the federal government, Federal Direct Student Loans combine low, fixed interest rates, a variety of payment choices, and even some forgiveness options. There is a small fee to get these loans and there are limits to how much you can borrow.

Every student who is enrolled in college at least half time is eligible for Federal Direct Loans. Your FAFSA determines whether the interest on your loan will be subsidized by the federal government. Read more below and here.

  • Federal Direct Subsidized Student Loans - If you have financial need, you may qualify for a low-interest loan with an added benefit: The interest is paid for you as long as you’re enrolled in school at least half time.
  • Federal Direct Unsubsidized Student Loans - You don’t have to show financial need to qualify for unsubsidized loans. Interest on the loan starts adding up while you’re in school.

Federal Direct Parent PLUS Loans

Federal Parent PLUS Loans are also offered by the federal government. These loans are issued in your parent’s name and have significantly higher interest rates and fees than Federal Direct Loans for undergraduates.

With a Parent PLUS loan, your parent assumes all responsibility for repayment. Don’t accept a Parent PLUS Loan as an “award” without understanding the interest rate and payment terms.

Private Student Loans

These are non-federal loans offered by banks, credit unions, or other lenders. If you qualify, you can borrow up to 100% of what isn’t covered in your financial aid package. You usually have to have a parent or other person cosign on the loan to help you qualify.

You will generally get a better interest rate if you have a good credit history and/or have a cosigner, but check with your lender on the details.

Explore Federal Direct Student Loans for undergraduates first before considering other options.

Compare before you choose

To help you chart your journey to graduating with less debt, visit Studentaid.gov for a side-by-side comparison of federal vs. private student loans.