College  |  September 26, 2018  |  Reyna Gobel

Federal vs. private student loans: which is right for you?

What you'll learn
  • How federal and private loans compare
  • The basics on interest rates, breaks in payment, and loan limits
  • How to improve your credit score

Relying solely on federal student loans isn’t always the best choice for everyone. The best option may be a combination of federal and private student loans.

Here’s what you need to know when researching them:

Interest rate options have changed

An old reason for avoiding private student loans was the lack of fixed interest rates—rates that remain the same for the life of the loan. Without fixed interest rates, your monthly payment could vary every month. This made budgeting for student loan payments a lot harder. Now, many private student loans offer fixed interest rates, sometimes lower than their federal student loan counterparts for highly-qualified applicants.

However, don’t forgo some of the benefits that come with federal loans, like subsidized interest rates and income-based repayment plans.


Need money for college?

Consider a Sallie Mae® private student loan

  • Available for online or on-campus study
  • Competitive fixed and variable rates
  • No origination fee or prepayment penalty
  • Multi-Year Advantage: Returning undergraduate students have a 95% approval rate with a cosigner1
blog cross sell ad photo of a young female girl student sitting at her desk studying with notebooks, headphones, and laptop.

Breaks from payment differ

There are certain circumstances, like a hardship or going back to school, where you request to have your payments temporarily suspended.

Private student loans are issued by private companies and many have different programs for payment breaks depending on the company that issued the loan. Ask your lender about time given and rules for loan repayment.

Federal student loans offer deferment and forbearance, which allow guaranteed breaks from payment for set circumstances. You can also get payments as low as $0 on federal student loans with income-driven repayment plan options. Check with your lender or federal loan servicer to see if your interest will continue to accrue during your break in payments.

Approval amounts can be different

Federal student loans can cover up to the full cost of attendance, including room and board, tuition and fees, etc. However, this amount is not based on income and payments may be well above what a family can afford.

Some private lenders may approve a loan amount based not on the cost of attendance, but the ability to repay. Because the amount may be lower, the family may decide to pick a less expensive school or the student may need to find a part-time job. Either way, it’s more likely that they’ll be able to afford the loan.

Credit checks vary

Most federal student loans don’t require credit checks, but private student loans do. Federal loans such as Parent PLUS and federal graduate loans require a credit check that considers only whether the applicant is experiencing certain specific credit conditions. The advantage to a more thorough credit check is that it takes into account payments the family is already making on everything from credit cards to other student loans to mortgages. The best part? Credit approval can change. In three months, you can improve your credit health with simple actions such as paying bills on time and paying down credit cards.

Affordability is a priority

Choosing between student loans is more complicated than it used to be. But yay! You have more options. Choose between federal or private student loans or a combination of the two based on the differences that are important to you, which may include interest rates, your credit history, payment breaks, and loan limits. Always make repayment affordability your top priority in all loan borrowing.


1. You must apply for a new loan each school year. This approval percentage is based on students with a Sallie Mae undergraduate loan in the 2018/19 school year who were approved when they returned in 2019/20. It does not include the denied applications of students who were ultimately approved in 2019/20.
Reyna Gobel was compensated by Sallie Mae for the content in this article. However, all opinions expressed are her own.
Sallie Mae does not provide, and these materials are not meant to convey, financial, tax, or legal advice. Sallie Mae makes no claims about the accuracy or adequacy of this information. These materials may not reflect Sallie Mae’s view or endorsement. Consult your own attorney or tax advisor about your specific circumstances. Reproduction without explicit permission is prohibited.
You must apply for a new loan each school year. This approval percentage is based on students with a Sallie Mae undergraduate loan in the 2018/19 school year who were approved when they returned in 2019/20. It does not include the denied applications of students who were ultimately approved in 2019/20.