Federal vs. Private Loans: What’s the Difference?

Brought to You by Our Partners at College Ave Student Loans

There are two types of student loans: federal student loans and private student loans. If you’re trying to figure out how you are going to pay for college, you’ve likely encountered both. Federal and private student loans are not the same, and it’s important to know the difference.

Our partners at College Ave Student Loans took the time to break down the difference. Keep reading!

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Federal Student Loans

Federal student loans are made and funded directly by the federal government. There are a few types of federal loan programs, and they are awarded based on set eligibility criteria. The main federal student loans break down as follows:

  • The Direct Subsidized Loan is available to undergraduate students with financial need, and recipients are not responsible for paying the interest charges on the loan while in school.
  • The Direct Unsubsidized Loan is available to undergraduate and graduate students who meet the eligibility requirements, but there is no requirement to demonstrate financial need.
  • The Direct PLUS Loan is available to eligible graduate students and parents.

Direct Unsubsidized and Direct Subsidized Loans – also known as Stafford Loans – are the most common type of federal student loans for undergrad and graduate students. Direct PLUS Loans – also known as Grad PLUS and Parent PLUS – have higher interest rates and disbursement fees than Stafford Loans.

 

Private Student Loans

Private student loans, sometimes referred to as non-federal or alternative loans, are made and funded by private lenders, such as banks and financial companies. Private student loans usually require a credit and income review to determine an individual’s anticipated ability to repay the loan.

Since many students have limited credit history and income, private student loans typically require a cosigner. A cosigner is often a parent or other family member who has established credit and income who agrees to take equal responsibility to repay the loan if the student borrower is unable.

 

Learn More

Find out more about the difference between Federal and Private Student Loans. Learn about interest rates, filling out the FAFSA, and repayment after graduation. Visit the College Ave Student Loans blog for the full article!

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