Editor's Note: For the latest developments regarding federal student loan debt repayment, check out our student debt guide.
When it comes to financing a college education, there are several very different options, and it’s important to understand the pros and cons of each.
Depending on your academic qualifications, you may have been awarded scholarships or grants, which is funding that won’t (typically) need to be repaid. Any expenses not covered by a scholarship will need to be financed, often through a combination of work-study, personal funds, and student loans.
It is fairly common for college students to take out student loans to finance their education. There are two main types of student loans — private student loans and federal student loans. We’ll compare and contrast some of the more popular features of both private and federal student loans and explore some features that can help you determine what makes the most sense for your financial situation.
Types of Federal Student Loans
Federal student loans are funded by the federal government. In order to qualify, you must fill out the Free Application for Federal Student Aid (FAFSA®) every year that you want to receive federal student loans. We’ll delve more into the FAFSA soon — but first, here are some important distinctions to consider.
Subsidized vs Unsubsidized Loans
Federal loans can be subsidized or unsubsidized. If you’re an undergraduate student in financial need, you may qualify for a subsidized loan. The amount of money you qualify for will be determined by your school.
With subsidized loans, the U.S. government covers the interest that accrues while you are a full- or half-time student, during a six-month grace period after graduation, and for any periods of loan deferment.
If you receive an unsubsidized federal loan, you don’t need to demonstrate financial need when applying. Interest begins accruing from the day your loan is disbursed — though borrowers are not required to make payments until six months after graduation. As with subsidized loans, your school will determine the amount you can receive, based on your cost of attendance.
Direct PLUS Loans for Parents and Graduate Students
Direct PLUS Loans are another source of federal student loan funding. To qualify for graduate PLUS Loans, you need to be a graduate-level or professional student in a program that offers degrees or certifications, and attend college at least half-time.
Parents can also apply for a Parent PLUS loan if their dependent undergraduate student attends an eligible school at least half-time. “Parent” is defined as biological, adoptive, or sometimes a stepparent.
To obtain a Direct PLUS loan, you cannot have an adverse credit history. And you and your dependent child must meet the general eligibility requirements for federal student aid.
Recommended: How Do Student Loans Work? Guide to Student Loans
More About the FAFSA
If you plan to apply for any of these types of federal loans, you’ll need to fill out the FAFSA form. Be aware of your state’s FAFSA deadline — FAFSA funding is determined on a rolling basis, so the sooner you can apply, the sooner you may qualify.
The new FAFSA application typically is available on October 1 of the prior year. The 2025-26 FAFSA form is expected to be released on October 1, 2024.
Benefits of Federal Student Loans
First off, you won’t be responsible for making student loan payments while you are actively enrolled in school. Your repayment will typically begin after you graduate, leave school, or are enrolled less than half-time.
Another perk is that your credit history doesn’t factor into a federal loan application. One exception is Direct PLUS Loans for grad students and parents.
Interest rates on federal student loans are fixed and typically lower than interest rates on private student loans. Depending on the type of federal loans you have, the interest you pay could be tax-deductible.
When it comes to federal student loan repayment, there are several options to choose from, including several income-driven repayment plans.
If you run into difficulty repaying your federal student loans after graduation, or if you drop below half-time enrollment, deferment and forbearance options are available. These programs allow qualifying borrowers to temporarily pause payments on their loans should they run into financial issues — but interest may still accrue. The loan type will inform whether a borrower qualifies for deferment or forbearance. Borrowers can contact their student loan servicer for more information on these programs.
Qualifying borrowers can also enroll in certain forgiveness programs, such as Public Service Loan Forgiveness (PSLF). These programs have strict requirements, so borrowers who are pursuing forgiveness should review program details closely.
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Federal Student Loan Pros and Cons
Here is a recap of some of the pros and cons of federal student loans.
| Pros | Cons |
|---|---|
| Federal student loans do not require a credit check, except for PLUS Loans. | Federal borrowing limits may mean that students aren’t able to borrow enough funds to cover their entire cost of attendance. |
| Undergrads may apply for Direct Subsidized student loans. Interest does not accrue while students are enrolled at-least half time, during the grace period, and during qualifying periods of deferment or forbearance. | Not all students qualify for Direct Subsidized student loans, which are need-based. Borrowing limits also apply. |
| Deferment and forbearance options are available to borrowers who run into financial difficulty during repayment. | Depending on the type of loan, interest may accrue during periods of deferment or forbearance. | Borrowers have access to federal repayment plans, including income-driven repayment plans. |
| Fixed interest rates are generally lower than interest rates on private student loans. | |
| Borrowers may pursue federal loan forgiveness through programs like Public Service Loan Forgiveness. |
The CARES Act and Federal Student Loans
The CARES Act, passed in March 2020 in response to COVID-19, temporarily paused payments on most federal student loans and set interest at 0%. With the signing of the debt ceiling bill in June 2023, the three-year pause came to an end. Interest on federal student loans resumed on September 1, 2023, and the first post-pause payments were due shortly after. To ease the transition, borrowers won’t be reported as delinquent if they are late with payments through September 2024.
The CARES Act and the payment pause did not apply to private student loans.
Private Student Loans
Private student loans are not funded by the government. To apply for them, you can check with individual lenders (banks, credit unions, and online lenders), with the college or university you’ll be attending, or with state loan agencies.
Because these loans are available from multiple sources, each will come with its own terms and conditions. So when applying for private student loans, it’s important to clearly understand annual percentage rates (APRs) and repayment terms before signing, as well as the differences between private vs. federal student loans.
Since private student loans are not associated with the federal government, their repayment terms and benefits vary from lender to lender. Some private loans require payments while you’re still attending college. Unlike federal loans, interest rates could be fixed or variable. If you are applying for a variable-rate loan, it’s a good idea to check how often the interest rate can change, plus how much it can change each time and what the maximum interest rate can be.
When applying for a private loan, the lender typically reviews your financial history and credit score, which means it may be beneficial to have a cosigner.
Be sure to ask your lender about repayment options in addition to any deferment or forbearance options. These will all vary by lender, so it’s important to understand the terms of the particular loan you are applying for.
Benefits of Private Student Loans
Private student loans offer several benefits that can make them an attractive option for some students. One significant advantage is their ability to cover the full cost of attendance, including tuition, fees, and living expenses, which can be particularly helpful if federal loan limits are insufficient.
Additionally, private lenders often provide a variety of loan options with different repayment terms and interest rates, allowing borrowers to choose a plan that best fits their financial situation and future income expectations. Some private loans offer competitive interest rates, especially for borrowers with excellent credit or those who have a creditworthy cosigner, potentially resulting in lower overall borrowing costs compared to federal PLUS loans.
Another benefit of private student loans is the potential for customization and flexibility in loan features. Many private lenders offer interest rate discounts for autopay enrollment, loyalty discounts for existing customers, and even the option to release a cosigner after a certain period of on-time payments.
Private loans can also be accessed more quickly than federal loans, which can be advantageous in time-sensitive situations.
Private Student Loans Pros and Cons
Here is a recap of some of the pros and cons of private student loans.
| Pros | Cons |
|---|---|
| Higher loan limits that can cover the cost of tuition, fees, and living expenses. | Generally higher and potentially variable interest rates compared to federal student loans, especially for borrowers with lower credit scores. |
| Competitive interest rates for borrowers with excellent credit. | Require a good credit score or a creditworthy cosigner, making them less accessible for some students. |
| Flexible repayment terms and interest rate options (fixed and variable). | Limited repayment plans and fewer options for deferment and forbearance compared to federal loans. |
| No loan origination fees. | No access to federal loan benefits such as income-driven repayment plans, forgiveness programs, and forbearance options. |
| Interest rate discounts for autopay, loyalty discounts for existing customers, and tailored loans for specific professional programs. | If opting for a variable rate loan, the interest rate can increase over time, leading to higher payments. |
| Option to release a cosigner after a period of on-time payments, reducing the financial obligation on the cosigner. |
Private loans can help fill the monetary gap between what you’re able to cover with grants, scholarships, federal loans, and the like, and what you owe to attend college. It’s never a bad idea to take the time to do your research, shop around, and find the best loan options for your personal financial situation. For a full overview, take a look at SoFi’s private student loan guide.
Determining Whether a Student Loan Is Federal or Private
To find out if the student loan you have is a federal student loan, one option is to check the National Student Loan Data System (NSLDS). This database, run by the Department of Education, is a collection of information on student loans, aggregating data from universities, federal loan programs, and more.
Borrowers with federal student loans can also log into My Federal Student Aid to find information about their student loan including the federal loan servicer.
Private student loans are administered by private companies. To confirm the information on a private student loan, one option is to look at your loan statements and contact your loan servicer.
Options for After Graduation: Consolidation vs Refinancing
After graduation, depending on one’s student loan situation, borrowers may wish to consider consolidation or refinancing options to combine their various loans into a single loan.
The federal government offers the Direct Consolidation Loan program that allows borrowers to combine all of their federal loans into one consolidated loan.
Loans consolidated in this program receive a new interest rate that is the weighted average of the interest rates of all loans being consolidated — rounded up to the nearest one-eighth of a percent. This means that the actual interest rate isn’t necessarily reduced when consolidated. If monthly payments are reduced, it is most likely because the repayment term has been lengthened. Additionally, only federal student loans are eligible for consolidation in the Direct Consolidation Loan program.
Student loan refinancing, on the other hand, means taking out a new loan and using it to pay off all the other student loans. Depending upon individual financial situations, applicants could qualify for a lower interest rate through refinancing.
When an individual applies to refinance with a private lender, there is typically a credit check of some kind. Each lender reviews specific borrower criteria that influences the rate and terms an applicant may qualify for.
Recommended: The SoFi Guide to Student Loan Refinancing
Combining Federal and Private Student Loans
Refinancing federal loans with a private lender is the only option that allows borrowers to combine both federal and private student loans into a single loan. While refinancing may allow borrowers to secure a competitive interest rate or preferable terms, it’s very important to understand that when you refinance federal student loans, they no longer qualify for federal benefits or borrower protections.
Refinancing may make sense for federal student loan holders who do not plan to take advantage of any federal programs or payment plans, but it won’t make sense for everyone. When you are evaluating whether you should refinance student loan debt, reflect realistically on your professional and financial situation. For example, borrowers who are enrolled in income-driven repayment plans or are pursuing Public Service Loan Forgiveness, may find that refinancing their federal student loans doesn’t make sense for their personal goals.
The Takeaway
Federal student loans differ from private student loans in key ways. You must fill out the FAFSA every year to qualify for federal loans. With subsidized federal loans, interest doesn’t accrue until after graduation and a six month grace period. Federal loans also offer special protections to borrowers, such as deferment and Public Service Loan Forgiveness. The same protections are not available on private student loans. You may or may not qualify for a lower interest rate on a private student loan, depending on your credit history, whereas your credit score doesn’t affect your ability to qualify for federal student loans.
If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.
FAQ
What is the difference between a federal and private student loan?
Federal student loans are issued by the U.S. government with fixed interest rates, more flexible repayment options, and benefits like income-driven repayment plans and loan forgiveness programs. Private student loans are offered by private financial institutions with rates and terms based on creditworthiness, often requiring a cosigner, and generally lacking the same level of repayment flexibility and borrower protections. However, private student loans are a good option once federal student loans have been exhausted.
What is the downside to using private student loans instead of federal student loans?
The downside to using private student loans instead of federal student loans includes higher and potentially variable interest rates, less flexible repayment options, and fewer borrower protections. Private loans often require a good credit score or a cosigner, lack income-driven repayment plans and loan forgiveness programs, and generally offer limited deferment and forbearance options compared to federal loans.
How much student loan debt is federal vs private?
According to the Education Data Initiative, federal student loan debt significantly outweighs private student loan debt in the United States, with federal loans comprising approximately 92% of the total student loan debt, amounting to around $1.6 trillion, while private loans account for the remaining 8%, or roughly $140 billion.
Is it better to get a federal or private student loan?
It is generally better to get a federal student loan due to its lower interest rates, flexible repayment options, and robust borrower protections. However, private student loans can be a good option once federal student loans have been exhausted.
SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs.
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