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Federal vs. Private Student Loans

Federal student loans are available through the Federal Direct Loan Program, and some of the loans are available regardless of financial need.

They offer students and parents/guardians the ability to borrow money directly from the federal government at a competitive interest rate. Federal student loans come with entitlements, such as a range of payment options and benefits, that private student loans are not required to provide. You should consider federal loans before considering private student loans.

Private student loans are offered by banks, credit unions, and other private lenders. They are a great way to pay for college after you have explored your other options. Private student loans are credit-based, so your lender will review your creditworthiness before making the loan. Private loans offer flexibility, since they can be taken out by a student (often along with a cosigner), parent, or creditworthy individual (guardian, relative, or spouse). But, unlike federal student loans, some private student loans have variable interest rates that can go up after consummation (when the loan has been approved and disbursed by the lender, after you have signed all the paperwork). Just like shopping for anything else, it’s worth spending some time comparing interest rates and loan terms to find the best loan for your needs.

Assessing your student loan needs

Before you sign up for any student loans, be responsible. Estimate what your monthly payments might be with a Student Loan Payment Amount Estimator. Keep in mind that you’ll have other financial obligations after graduation, such as rent or mortgage, utility bills, and transportation, so borrow accordingly.

Research your future earnings potential in your chosen field. The U.S. Department of Labor lists salary estimates by occupation. Use their salary estimates to follow these generally accepted guidelines: (1) Your monthly payment should be no more than 10% of your pre-tax monthly income2 and (2) The total amount you borrowed to pay for college should be less than your expected annual starting salary3.

College Planning CalculatorSM

Many students and their families use an “all of the above” approach to paying for college. Build your overall plan with the College Planning CalculatorSM, a free tool that helps calculate the expected cost of college and how you will successfully pay for it with savings, income, scholarships, grants, and loans.

Start Your Plan


Compare Parent PLUS Loans with private student loans (PDF)

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2 This information was gathered on December 2, 2015 from

3 This information was gathered on December 2, 2015 from