What are the main differences between federal student loans and private student loans?

Answer: Federal student loans are loans made or guaranteed by the Department of Education. Private or non-federal student loans are any other type of student loans.

While both federal student loans and private student loans allow you to borrow money to pay for education expenses, there are some distinct differences. 

Federal student loans can be better for students in several important ways:

  • In some cases, the federal government will subsidize - pay the interest on - your federal student loan while you are in school.
  • Your interest rate for a federal student loan is generally fixed, not variable; most private student loans carry variable interest rates.
  • Federal student loans allow you to limit the amount you must repay each month based on your income.
  • For borrowers pursuing careers in public service,  on federal student loans may be available after 10 years.

Federal student loans also feature other important borrower protections, including:

  • Options to delay or temporarily forgo payments (like deferment and forbearance)
  • Discharge upon a borrower’s death
  • Discharge upon permanent disability (with certain limitations)

But the consequences for defaulting on a federal student loan are pretty serious:

  • Your wages may be garnished without a court order; and
  • You can lose out on your tax refund or Social Security check (funds would be applied toward your defaulted student loan).

Private student loans are any student loans that are not federal student loans. These loans do not offer the flexible repayment terms or borrower protections featured by federal student loans. Private student loans are not funded or subsidized by the federal government;  instead, they are funded by banks, credit unions, or other types of lenders.

The bank or lender – not the federal government – sets interest rates, loan limits, terms, and conditions of private student loans. Your ability to qualify for and borrow a private student loan may be based on numerous factors that can include your credit history, whether or not you choose to have a co-signer, your co-signer’s credit history, your choice of school, and your course of study.

While private student loans are all structured differently, they are generally different from federal student loans in several ways and may include:

  • Variable interest rates that can rise when interest rates rise during the life of the loan — which can substantially increase your payment
  • Fewer options to reduce or postpone payments
  • Less flexible repayment options
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