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

Federal and Private Student Loans. What’s the Difference?

Here are some general characteristics of federal and private student loans.

Federal student loans:

• Have fixed interest rates
• May include federally-subsidized interest depending on the student’s need
• Provide flexible repayment and deferment options, including income-based repayment
• Require completion of the FAFSA
• Require school certification
• May offer borrower benefits, such as interest rate discounts
• PLUS loans require that the borrower have no adverse credit
• Stafford and Perkins loans are not credit based

Private student loans:

• Can help when federal student loans, scholarships, grants and other aid aren't enough to fund your entire cost of education
• Have interest rates and fees that are determined by the lender and often depend on your credit rating
• May have variable interest rates
• Although a cosigner is not necessary or required to apply, a qualified cosigner may help a student get approved for a private student loan and possibly get a better interest rate
• May or may not have deferment and forbearance options
• May offer borrower benefits, such as interest rate discounts
• May require school certification
• Require completion of a self-certification form

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

There are four major types of federal student loans available for students and their parents: Stafford loans, PLUS loans, Perkins loans and consolidation loans. Federal student loans are the largest source of student loans around. They have attractive terms, such as fixed interest rates, and may include federally subsidized interest. Additionally they have many flexible repayment and deferment options. Federal Stafford, PLUS and consolidation loans are now available solely from the Direct Loan program. Perkins loans are made though colleges to students who demonstrate the greatest financial need. You will need to complete the Free Application for Federal Student Aid (FAFSA) before you can apply for federal student loans.

You should always consider exhausting your federal student loan options before applying for a private student loan. Private student loans are designed to supplement federal student loan programs when federal loans and other aid aren’t enough to cover the entire cost of your education. Private student loans are available from banks and education loan companies. Private student loans are also known as alternative loans and the terms often vary considerably based on the lender and the borrower's credit history.

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

*Important Information: Private loans, like the Chase Select loan, can be used when federal loans, grants and other forms of financial aid are not sufficient to cover the full cost of education.

Student borrowers and cosigners are equally responsible for repayment of the loan.

  This is a link to a third-party site as described in our Weblinking Practices. Note that the third party's privacy policy and security practices may differ from Chase standards. Chase assumes no responsibility nor does it control, endorse or guarantee any aspect of your use of the linked site.

This information was current as of 07/01/2011 and is subject to change. Contact Chase for current product information.