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

Learn more about your college financing options.

By: Navy Federal on April 3, 2015

A college education is an investment in your future that will last a lifetime. Arm yourself with knowledge about student loan options that can help make it affordable.

You may be familiar with federal student loans. These are loans funded directly by the federal government. Students (and their parents, for dependent students) must complete the Free Application for Federal Student Aid (FAFSA) in order to be eligible for federal student loans. The college or university to which you are applying may also require a financial aid profile. The FAFSA is available as of Jan. 1 and must be completed by the deadlines set by the federal government, your state and perhaps your school.

Private student loans are loans provided through private financial institutions, such as credit unions and banks.

Why consider a private student loan?

Many college financing experts recommend completing the FAFSA first to see how much federal aid you may qualify for, and then exploring options for private financing to help fill any gaps. You might want to consider a private student loan for a number of reasons:

  • Your federal financial aid package may not be enough to cover the cost of your education.
  • You may be able to obtain a lower interest rate with a private loan, since the rate for federal student loans is fixed and determined by Congress.
  • You may become ineligible for federal financial aid if you fail to make satisfactory academic progress.

See the table below to compare the features of federal and privates student loans.

We'll help you make the grade

Navy Federal is committed to helping all its members succeed financially, and getting a good education can be an important step to a well-paying career.

Comparing Federal and Private Student Loans

Federal Student Loans Private Student Loans
Interest rate Fixed May be fixed or variable
Repayment period Begins when you graduate, leave school or attend less than half-time Varies by lender; repayment may be required while you're in school, which may reduce your overall cost of borrowing
Subsidies Undergraduate students with financial need may qualify for subsidized loans; the government pays the interest while you attend school at least half-time Typically no subsidies
Credit check Only for PLUS loans Loan approval is dependent on your creditworthiness; you may need a co-signer
Tax breaks Interest may be tax-deductible (consult your tax advisor) Interest may be tax-deductible (consult your tax advisor)
Repayment options Several plans available, including tying monthly payments to your income Varies by lender
Prepayment penalty fee None Varies by lender
Loan forgiveness May be available to certain individuals who work in a public service field Typically not available

Source: Federal Student Aid, an Office of the U.S. Department of Education, studentaid.ed.gov