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Financial Aid Knowledge Base

Should my parents apply for the PLUS loan or outside/private loans?

May 09, 2013

What are the differences between federal and private student loans?

Federal Student Loans v. Private Student Loans

  1. Federal student loans include many benefits (such as fixed interest rates and income-based repayment plans) not typically offered with private loans. In contrast, private loans are generally more expensive than federal student loans.
  2. You will not have to start repaying your federal student loans until you graduate, leave school, or change your enrollment status to less than half-time. (Many private student loans require payments while you are still in school.)
  3. The interest rate is fixed and is often lower than private loans—and much lower than some credit card interest rates. View the current interest rates on federal student loans. (Private student loans can have variable interest rates, some greater than 18%. A variable rate may substantially increase the total amount you repay.)
  4. Undergraduate students with financial need will likely qualify for a subsidized loan where the government pays the interest while you are in school on at least a half-time basis. (Private student loans are not subsidized. No one pays the interest on your loan but you.)
  5. You don’t need to get a credit check for most federal student loans (except for PLUS loans). Federal student loans can help you establish a good credit record. (Private student loans may require an established credit record. The cost of a private student loan will depend on your credit score and other factors.)
  6. You won’t need a cosigner to get a federal student loan in most cases. (You may need a cosigner to get a private student loan.)
  7. Interest may be tax deductible on a federal student loan. (Interest may not be tax deductible on a private student loan.)
  8. Loans can be consolidated into a Direct Consolidation Loan. Learn about your consolidation options. (Private student loans cannot be consolidated into a Direct Consolidation Loan.)
  9. If you are having trouble repaying your loan, you may be able to temporarily postpone or lower your payments. (Private student loans may not offer forbearance or deferment options.)