Key takeaways
- Federal student loans offer more robust benefits than private student loans, but they may not always be the more affordable option.
- Borrowers with strong credit, especially graduate students and parents, may qualify for a private student loan with a lower interest rate and no origination fee.
- When you’re shopping for a private student loan, compare features like interest rates, repayment terms, cosigner policies, and hardship protections.
When you need to borrow for college, federal student loans are the first place you should look. They offer flexible repayment terms, hardship protections, and other benefits. But they’re not always the most affordable option for every borrower. If you’re a graduate student or parent with strong credit, for instance, it’s possible you could find a lower interest rate with a private lender. Here’s when a private student loan may be a better option than a federal loan, along with what to consider as you compare your borrowing options.
When can a private student loan be better than a federal loan?
A private student loan could be a lower-cost option than a federal loan for some borrowers. Here are a few scenarios where it might be the preferable option.
You qualify for a lower interest rate (and no fees)
Interest is the cost of borrowing money, so it’s worth seeking out the lowest rate available to you. Federal student loan rates are fixed by federal law. Here are the rates for loans disbursed on or after July 1, 2026 and before July 1, 2027:
| Loan type | Interest rate |
|---|---|
| Direct Subsidized and Unsubsidized Loans for undergraduates | 6.52% |
| Direct Unsubsidized Loans for graduate and professional students | 8.07% |
| Direct Parent and Grad PLUS Loans | 9.07% |
The rate you get on a private student loan, on the other hand, largely depends on your financial profile, especially your credit. If you have great credit, you might get a rate that’s lower than the federal one. For instance, some private lenders offer rates starting around 2% or 3%.
This may be especially relevant for graduate students and parents who face higher rates than undergraduates. It could be worth checking your rates with private lenders to compare. Many lenders let you prequalify for preliminary offers online with no impact on your credit.
Many private lenders also don’t charge origination or application fees on their loans. Federal student loans, on the other hand, come with loan fees of 1.057% for Direct subsidized and unsubsidized loans and 4.228% for PLUS loans.
You don’t expect to use federal loan benefits
Federal student loans come with a number of borrower protections, including income-driven repayment, forbearance, deferment, and eligibility for forgiveness programs. These can be a lifesaver if you run into financial hardship or work in a career that qualifies for forgiveness.
But if you have a stable income and don’t plan to pursue forgiveness, you may not prioritize these federal benefits. In this case, you may simply pick the loan with the lowest costs of borrowing, whether that’s a federal or private student loan.
At the same time, consider what you’ll do if you lose your job or run into unexpected expenses. Some private lenders offer forbearance, deferment, or loan modification, but options vary by lender and are often evaluated on a case-by-case basis.
You want shorter repayment term options
Federal student loan repayment terms start at 10 years, but many private lenders offer shorter term options. For example, College Ave offers loan terms of 5, 8, 10, 15, or 20 years, depending on the type of loan.
If you can pay your loan off quickly, you may appreciate these shorter-term options. While a short term will have higher monthly payments, it will get out of debt sooner and cut down your total interest costs.
That said, you can prepay any student loan, federal or private, without penalty. So even if you start with a longer repayment term, you can always make extra payments to cut down your balance ahead of schedule.
You’re an international student
International students aren’t eligible for federal financial aid, including federal student loans. However, many private lenders provide loans to qualifying international students.
You’ll likely need to provide certain documentation, such as a copy of your passport and student visa. Some lenders also require you to apply with a creditworthy cosigner who’s a U.S. citizen or permanent resident.
With private lenders, you can often borrow up to your school-certified cost of attendance, minus any other financial aid, like scholarships or institutional grants, that you’ve received.
When federal student loans are the better choice
Federal student loans are often a first choice for borrowers, especially undergraduate students. They may be your top pick if:
- You have limited credit or no cosigner: Unlike private student loans, Direct subsidized and unsubsidized loans don’t require a credit check or cosigner, so students can easily borrow on their own. PLUS loans do have a credit component, but it’s a relatively flexible requirement to meet.
- You qualify for Direct subsidized loans: These are available to undergraduate students with financial need and should be your top choice if you qualify. The government covers your interest charges while you’re in school, during your grace period, and during other periods of deferment.
- You want the option of income-driven repayment: Most federal loans qualify for income-driven repayment, which adjusts your payments along with your income and can eventually end in loan forgiveness. Note that Parent PLUS loans disbursed after July 1, 2026 aren’t eligible for income-driven repayment.
- You plan to pursue loan forgiveness: You could get some or all of your federal loans forgiven if you qualify for a program like Public Service Loan Forgiveness or Teacher Loan Forgiveness.
- You want more repayment protections: Federal student loans also come with relief and discharge options that many private lenders don’t match. These include forbearance, deferment, and discharge for circumstances like permanent disability.
Federal student loans come with annual borrowing limits, though, so they may not cover your full cost of attendance. Some borrowers max out their eligibility for federal student loans before covering any remaining costs with a private student loan. That said, it’s always wise to look for other sources of funding before you borrow more loans, such as grants, scholarships, or income from a part-time job.
What to compare before choosing a private student loan
If you’re looking for a private student loan, here are some features to guide your decision:
- Credit or cosigner requirements: If this information is available, find out what credit score, income, or other criteria you or your cosigner must meet to get approved.
- Interest rate and fees: Look for a loan with a low interest rate and low (or no) fees. Some lenders offer interest rate discounts for autopay or other reasons.
- Repayment terms: Find out what your repayment term options are, and estimate what your monthly payments will be on each term.
- In-school repayment options: Many lenders let you defer payments while you’re in school, make interest-only payments, pay $25 per month, or make full payments right away. Private parent loans often require interest-only payments or full payments while the child is in school, though terms vary by lender.
- Grace period: Consider how long you can postpone payments while you’re looking for a job after graduation. A standard grace period is six months, but some lenders offer a longer grace period for certain graduate school loans.
- Cosigner release: If you’re applying with a cosigner, find out if you can apply for cosigner release after a certain number of payments or period of time has elapsed.
- Hardship protections: Some lenders may let you skip a payment, modify your repayment schedule, or postpone payments through deferment or forbearance if you lose your job, go back to school, or have another qualifying reason.
How to decide which student loan is right for you
Federal student loans are usually the best starting point for undergraduates, especially if you qualify for Direct subsidized loans. But parents and graduate students may benefit from comparing rates and fees on private and federal loans to find the more affordable offer.
Interest rate alone isn’t the only consideration, though — you may also benefit from federal protections like deferment, forbearance, income-driven repayment, and forgiveness. Consider your income and career plans before you give up potentially helpful federal benefits.
You may also decide to borrow federal student loans first and then take out a private student loan if you still have costs to cover. If you decide to borrow privately, compare interest rates, repayment terms, and other loan features to find your best offer. With College Ave, you can check your personalized student loan rate, making it easy to explore your options before applying.
Whatever you decide, borrow only what you need to avoid taking on too much debt. Estimate your future monthly payments before you commit so you have a clear understanding of what repayment will look like after you graduate.
FAQs
Can I borrow both federal and private student loans?
Yes, you can borrow both federal and private student loans for school. Some students max out their eligibility for federal student loans and then borrow a private student loan to cover a remaining gap in funding.
Can private student loans have lower interest rates than federal loans?
It’s possible that private student loans can have lower interest rates than federal loans, especially for borrowers with strong-credit. For instance, parents with good credit may get a lower rate on a private student loan than the 9.08% rate currently attached to federal Parent PLUS loans.
Should you use federal student loans before private loans?
It’s generally a good idea to use federal student loans before private loans, since federal loans come with protections like deferment, forbearance, and income-driven repayment. Federal loans are also eligible for forgiveness programs like PSLF. However, borrowers who don’t expect to use federal protections may prefer whichever type of loan has the lower cost of borrowing.
Do private student loans qualify for loan forgiveness?
No, private student loans don’t qualify for federal loan forgiveness programs. However, there are some loan repayment assistance programs (LRAPs) that can help pay off both private and federal student loans for qualifying professionals.
Can you switch from private student loans to federal loans?
No, you can’t turn a private student loan into a federal loan. However, you can refinance private student loans for new rates and terms if you meet eligibility requirements. You can also turn a federal loan into a private loan through refinancing, but doing so means you lose access to federal benefits and forgiveness programs.
Is it a good idea to refinance federal loans into a private loan?
It may be a good idea to refinance federal loans into a private loan if it would bring you meaningful savings and you don’t need any federal benefits. However, you’ll need to make sure you’re comfortable giving up federal repayment plans, forgiveness programs, and other protections, as the process is not reversible.
