Federal vs. Private Student Loans: What's the Difference?

College student holding his textbook and smiling at camera.

When it comes to choosing a student loan, there are many factors to consider. Before you start researching, though, make sure to understand the differences between federal and private student loans. 

While they often complement each other, there are some key factors that you need to be aware of, so you borrow only what you need and keep your repayment amount as low as possible. Take a few minutes to compare federal student loans versus private student loans. 

3 Things to Consider When Choosing a Student Loan

Being able to repay your debt when you finish school needs to be at the forefront of your mind when choosing a student loan. You should consider the following:  

  • Low interest rate
  • Multiple repayment options
  • Borrower protections

What are Federal Student Loans?

Federal loans have fixed interest rates that are pretty competitive. There are three types of federal student loans you can apply for:

  • Direct subsidized loans. Students who demonstrate financial need are eligible to apply for these loans. Interest isn’t charged while students are in school or during any deferral periods. Students don’t have to start making payments until six months after leaving school.
  • Direct unsubsidized loans. These loans aren’t based on financial need. The amount a student can borrow is based on their attendance costs and financial aid. Unlike direct subsidized loans, interest is charged and added to the principal or disbursed amount of these loans at all times. Payments can be deferred up to six months after a student leaves school.
  • Direct PLUS loans. Graduate students and parents of dependent undergraduate students can apply for these credit-based, unsubsidized loans. Interest rates are higher for PLUS loans than other direct loans.

How to Apply for Federal Student Loans

A Free Application for Federal Student Aid, more commonly known as FAFSA, must be filled out and submitted each school year. The federal government will send your FAFSA to each of the schools you apply to. 

Each school’s financial aid department will determine how much aid you will receive and award you a financial aid package, which includes free grants, scholarships, work study, and any loans you are eligible for. 

You should accept any and all free aid and work study before taking any federal loans. Doing this can help you determine how much money you may need to borrow. 

What are Private Student Loans?

Private student loans can be obtained through credit unions and banks. You don’t need to fill out a FAFSA for private student loans, however, you will be subject to a credit check. 

You may be required to have a co-signer to obtain a private student loan. While that can increase your chances of being approved for the loan, it also means your co-signer is responsible for any missed payments down the road. 

If your financial aid package doesn’t cover all of your cost of attendance, a private student loan can fill that coverage gap. 

With private student loans, you often can choose whether you want a fixed or variable rate. There also can be different repayment plans, such as allowing you to make interest-only or fixed payments while you are in school. 

Taking advantage of the flexibility offered by private student loans, like in-school payment options, could actually lower the cost of your loan. 

Need a Private Student Loan?

If you’re looking into private student loans, TwinStar can help. We’ve partnered with Sallie Mae to provide you with options to cover your education costs – whether you are an undergraduate student, graduate student, or parent. 

Our private student loans feature:

  • Competitive rates
  • Multiple repayment options
  • No origination fees
  • No repayment penalty 

For more information about our private student loan options, visit our student loans page. 

How Much Money Should You Borrow?

The last thing you want once you finish school is to be burdened by too much debt. Opinions vary, and every student’s situation is different, but the general rule of thumb is to only borrow 10% of your projected after-tax income during your first year outside of college.

Keeping your payments manageable will help ensure that you don’t get too bogged down right away — and can enjoy your post-school life more.