Federal vs private student loans
Federal loans have fixed rates set by law and borrower protections; private loans are priced on credit. Here is how they differ and which to use first.
Sourced from official pages · Updated September 30, 2026💡 Key takeaways
- Federal loans offer fixed rates set by law, federal repayment plans and forgiveness programs.
- Private loans set rates from your and a cosigner’s credit and may be fixed or variable.
- Borrow in order: grants and scholarships, then federal loans, then private loans for any remaining gap.
- Refinancing federal loans into a private loan gives up federal benefits.
The short version
| Federal Direct loans | Private student loans | |
|---|---|---|
| Interest rate | Fixed; set each year by law (2026–27: 6.52% undergraduate, 8.07% graduate, 9.07% PLUS) | Set by the lender based on your (and a cosigner’s) credit; fixed or variable |
| Credit check | Not required for most Direct loans (undergraduate) | Required |
| Repayment options | Federal repayment plans and forgiveness programs | Set by the lender |
| Where to apply | FAFSA at studentaid.gov | Directly with a bank, credit union or online lender |
Order to borrow
Most students start with grants, scholarships and work-study, then federal loans, and consider private loans only for a remaining gap. Complete the FAFSA first.
🔍 What to compare in a private loan
- APR (and whether it is fixed or variable).
- Origination fees and any prepayment penalty.
- Cosigner release, deferment and hardship options.
- What happens if you leave school early or cannot find work.
You give up federal repayment options and forgiveness programs if you refinance federal loans into a private loan — see student loan refinancing.
Questions to ask before a private loan
- Is the rate fixed or variable, and what is the APR?
- Are there origination fees or a prepayment penalty?
- Is there cosigner release and after how many on-time payments?
- What happens if you cannot find work or leave school?
Protecting a cosigner
A cosigner is legally responsible for the debt. Talk through what happens if you miss payments and look for a lender that offers cosigner release.
🔤 Key terms
| Term | Meaning |
|---|---|
| Cosigner | Someone who agrees to repay if you do not |
| Cosigner release | Option to remove the cosigner after conditions are met |
| Origination fee | Fee taken from the loan amount before you receive it |
| Forbearance | A temporary pause or reduction of payments, usually with interest continuing |
Step by step: paying for school
- Fill out the FAFSA and review your aid offer.
- Accept grants and scholarships first.
- Use work-study and savings.
- Borrow federal loans if needed.
- Only then compare private loans for any gap.
⚠️ Common mistakes to avoid
- Skipping the FAFSA and going straight to private loans.
- Borrowing the maximum offered instead of what you need.
- Not comparing multiple private lenders.
- Taking a variable rate without understanding the cap.
🛠️ Try it yourself
❓ Frequently asked questions
Do federal loans require a credit check?
Not for most undergraduate Direct loans.
Can I get federal forgiveness on a private loan?
No, federal forgiveness programs apply only to federal loans.
Which should I borrow first?
Federal loans generally come first because of their protections.
What happens if I cannot pay a private loan?
Options are set by the lender; ask about hardship programs before you miss a payment.
📚 Sources
This guide is general information, not financial, tax or legal advice. Rules and limits change; confirm with the sources above or a licensed professional.