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

Among the differences between these two important student loan programs are:

Federal student loans:

• Have low fixed interest rates
• May include federally-subsidized interest
• Provide flexible repayment and deferment options, including consolidation
• Offer easier credit requirements
• Require completion of the FAFSA
• Require school certification
• May offer borrower benefits in the form of interest rate discounts or rebates

Private student loans:

• Can help when federal student loans, scholarships, grants and other aid aren't enough to fund your entire education
• Have interest rates and fees that are determined by the lender and often depend on your credit rating
• May require the borrower to have a cosigner, if the student does not qualify alone
• May or may not have deferment and forbearance options depending on the lender
• May offer borrower benefits in the form of interest rate discounts and rebates
• 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 long-term loans with low interest rates designed exclusively for those needing money to meet the costs associated with education.

Federal student loans are the largest source of student loans around. They have attractive terms when compared to most other borrowing options — such as low fixed interest rates, federal subsidized interest possibilities, options to postpone payments, longer repayment terms, easier credit requirements, etc. You will need to complete the Free Application for Federal Student Aid (FAFSA) before you can apply for federal student loans.

You should always plan to look for federal student loan options before investigating private student loan sources, because private student loans are sometimes more difficult to obtain and can often end up being very costly to you in the end. Private student loans are designed to supplement federal student loan programs and are available from schools, banks and education loan organizations. 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 will have long-term effects that can influence your lifestyle!

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