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Bottom Line Up Front

  • College borrowers have loan options from both the federal government and private lenders, and each has a role to play in education financing.
  • Federal loans are generally the first choice because they have better protections for borrowers, but they usually won’t cover all college costs.
  • It pays to shop around for private loans because terms will vary, but they can make up the gap between federal loan amounts and the actual cost of attending college.

Time to Read

4 minutes

August 1, 2022

Deciding how you’ll pay for college is one of the most important decisions you’ll make.

Some students are able to finance college with savings, and some qualify for grants and scholarships. Still, others pay for college with federal student loans, private student loans or a combination. Let’s take a minute to look at the differences between federal and private student loans.

Federal student loans are funded by the federal government and may come with benefits and protections you won’t get through private lenders. These loans have fixed interest rates, meaning your interest rate will never change during the entire length of the repayment period. The first step is for you (and your parents, if you’re a dependent) to complete the Free Application for Federal Student Aid (FAFSA), which is available Oct. 1 each year. The FAFSA must be completed by the deadlines set by the federal government, your state and your school to be eligible for grants, scholarships and loans (your college or university also might require a financial aid profile). Once the application has been processed, your college’s financial aid office will determine how much federal aid you’ll receive.

Private student loans are loans provided through private financial institutions like credit unions and banks. You’ll need to fill out an application, but unlike federal student loans, the financial institution (not the school) will determine if you qualify based on creditworthiness.

Why Consider a Private Student Loan?

Federal student loans don’t always cover all college costs. According to the U.S. Department of Education, undergraduate dependent students whose parents are eligible for Direct PLUS Loans are allowed a maximum of $31,000 in federal student loans to cover all 4 years of college, and independent students have a maximum borrowing limit of $57,500. When you compare these numbers to actual costs, you’ll see there could be a gap.

According to, for the 2021 academic year, the average cost of attendance for in-state public colleges averaged $27,330 per year and a moderate budget for private colleges averaged $54,800. That translates to roughly $109,320 for 4 years at an in-state public college and $219,200 for 4 years at a private college.

Estimated cost and federal funding allowed for different colleges
TypeEstimated Cost for 4 YearsTotal Funding Allowed: Federal Student LoansGap in Funding
Dependent student in state public college$109,320$31,000$78,320
Dependent student private college$219,200$31,000$188,200
Independent student in state public college$109,320$57,500$51,820
Independent student private college$219,200$57,500$161,700

It’s clear, then, that federal loans may not cover all your costs. That’s where private student loans can help.

Keep in mind that many college financing experts recommend completing the FAFSA first to see for how much federal aid you may qualify and then exploring options for private financing to help fill gaps. The chart below can help you compare the features of federal and private student loans.

Comparing Federal and Private Students Loans

Comparing Federal and Private Student Loans
FeatureFederal Student LoansPrivate Student Loans
Interest Rate OptionsFixed interest ratesFixed or variable interest rates
Repayment TermsLoan payments begin when you graduate, leave school or attend less than half-timeVaries by lender; monthly payments may be required while you’re in school, which may reduce your overall cost of borrowing
SubsidiesUndergraduate students with financial need may qualify for subsidized loans; the government pays the interest while you attend school at least half-timeTypically no subsidies
Credit CheckOnly for PLUS loansLoan approval is dependent on
your credit score and report;
without a good credit history, you
may need a co-signer to qualify or
to get lower interest rates
Tax BreaksLoan interest may be tax-deductible (consult your tax advisor)Loan interest may be tax-deductible (consult your tax advisor)
Repayment OptionsVarious repayment plans are availableVaries by lender
Loan ForgivenessEligibility depends on your situationTypically not available

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

We’ll Help You Make the Grade

Navy Federal is committed to helping its members, and getting a good education can be an important step. That’s why we offer private student loans and helpful assistance to ensure you make borrowing choices confidently.

Next Steps Next Steps

  1. The U.S. Dept. of Education has a complete rundown of the various types of student financing, including grants, scholarships and work-study in addition to loans.
  2. If college expenses are still a little way off for your family, Navy Federal’s College Savings Calculator can show you how to save up now so you can borrow less later.
  3. If it’s time to move forward with a private student loan, explore the options Navy Federal has for its members.


This content is intended to provide general information and shouldn't be considered legal, tax or financial advice. It's always a good idea to consult a tax or financial advisor for specific information on how certain laws apply to your situation and about your individual financial situation.