What’s the difference between federal and private student loans?

Among the differences between these two important loan programs are:

Private student loans:

• Can cover most education-related expenses
• Can help when federal student loans aren't enough to fund your entire education
• Have interest rates and fees that are determined by the lender and often depend on your credit rating
• May require the borrower to have a cosigner, if the student does not qualify alone
• May let you defer payments until six months after graduation or are no longer enrolled in school, or nine months after a medical residency

Federal student loans:

• Usually have lower interest rates
• Often include federally-subsidized interest
• Provide options to postpone payments
• May have a longer repayment term
• Offer easier credit requirements
• Generally require completion of FASFA
• Usually require school certification
• Can cover education related expenses
• May offer borrower benefits in the form of interest rate discounts or rebates

After you've checked for free funding available to you, if you decide you'll need additional assistance paying for your education, it's time to look to federal student loans. These are long-term loans with low interest rates designed exclusively for those needing money to meet the costs associated with education.

Federal loans are the largest source of student loans around. They have attractive terms when compared to most other borrowing options—such as lower interest rates, federal subsidized interest possibilities, options to postpone payments, longer repayment terms, easier credit requirements, etc. You will need to complete the Free Application for Federal Student Aid (FAFSA) before you can apply for federal student loans.

You should always plan to look for federal loan options before investigating private loan sources, because these loans are sometimes more difficult to obtain and can often end up being very costly to you in the end. Private loans are designed to supplement federal loan programs and are available from schools, banks and education loan organizations. Private loans are also known as alternative loans and the terms often vary considerably based on the lender and borrower credit histories.

Here are some important things to remember about the differences between federal and private student loans:

• Private loans may require a borrower to have good credit, as well as have a cosigner in most circumstances.
• Interest rates and fees are determined by the lender and usually depend on the borrower's or cosigner's credit score, unlike Federal Stafford Loans which have standard rates and fees.
• Private loan programs may or may not offer deferment options and forbearance of loan payments in certain circumstances.
• Private loan programs may offer borrower benefits. These could be in the form of interest rate discounts or rebates to encourage students to make timely payments, make automated payments, or to agree to enroll in Web-based billing and servicing. Remember that these benefits may differ from your Stafford loan borrower benefits even if you are using the same bank for both loans.
• You should be conservative and borrow wisely.

Remember: Any education loan has to be repaid—even if you don't finish school, are unhappy with the education you received or are unable to find a job, or you're making less money than you planned. So borrow wisely now, because the amount of money you borrow now will have long-term effects that can influence your lifestyle!

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