Federal vs. private student loans
Scenario. $20,000 borrowed over 10 years. The federal rate shown (6.5%) is fixed by law and identical for every borrower regardless of credit; the private rate (7.5%) assumes a fair-to-good credit borrower without a cosigner. A borrower with excellent credit or a strong cosigner could see a private rate below the federal one — the private side is genuinely risk-based, unlike the federal side.
| Federal student loan | Private student loan | |
|---|---|---|
| How the rate is set | Fixed by law, same for every borrower | Based on credit — fixed or variable |
| Credit check required? | No, except PLUS loans | Yes, often with a cosigner for students |
| Payment on $20,000 over 10 years (example rates) | $227 | $237 |
| Income-driven repayment plans | Available | Not offered |
| Forgiveness programs (e.g. PSLF) | Eligible | Not eligible |
| Deferment / forbearance protections | Broad, guaranteed by law | Discretionary, varies by lender |
Run “Federal student loan” → · Run “Private student loan” →
Why federal loans are the default first choice
Federal student loan rates are fixed annually by law and are identical for every borrower — there's no credit check for most federal loan types (Parent PLUS is the exception), so a student with no credit history at all still qualifies at the same rate as anyone else. That rate comes bundled with income-driven repayment, forgiveness programs like Public Service Loan Forgiveness, and broad deferment and forbearance rights if income drops or a hardship hits.
None of that comes with a private loan, which is why nearly every guide to paying for college says the same thing: exhaust federal borrowing first, and only then consider a private loan for whatever's left.
When a private loan makes sense
- You've borrowed the federal maximum for your year in school and still have a funding gap.
- You (or a cosigner) have excellent credit and can qualify for a rate meaningfully below the current federal rate — this genuinely happens, since the federal rate is fixed regardless of creditworthiness.
- You're refinancing after graduation, with stable income and established credit, and have decided you won't need income-driven repayment or forgiveness eligibility.