What's the difference between federal and private education loans?

Sara Lindberg

Sara Lindberg
Freelance Writer
Former High School Counselor
You’ve been accepted to college—congrats! Now you need to find a way to fund your dream. While you figure out tuition and fees, room and board, and everything else related to college, you might be wondering if there’s a difference between federal and private education loans. While both options lend you money to help cover college costs, there are some significant differences you need to know about.

First, a federal loan is funded by the government. To qualify, you must complete and file the FAFSA. Federal loans generally come with better terms and benefits, such as fixed interest rates that are lower and income-driven repayment plans. If you meet the financial criteria, you may be eligible for a subsidized loan, which means the government covers the interest while you’re in school. You’ll begin paying off these loans after you graduate, leave school, or drop down to less than half-time.

Private student loans are offered by banks and independent lending institutions, which have their own requirements for approval and loan terms. Many will require a minimum credit score or a qualified cosigner to even apply. The terms and rates often vary depending on the institution funding the loan, but private education loans typically come with the option of a fixed or variable rate—both are generally higher than the rates offered by the federal government. Plus, some lenders require payment on both the principal amount and the interest gained while you’re still in school, so it’s best to start paying off these loans before you graduate if possible. Be sure to research any student loan before you sign on the dotted line.

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