Skip to main content
Find a Location |

Routing #321180379

Know your student loans: federal versus private loans

The number of college hopefuls who need student loans to pay for school has been steadily growing over the last few decades. If your situation requires a student loan, you're also going to face a choice between federal student loans and private student loans. We’ve compiled some info to help you weigh the options.

UPDATE: If you have federal student loans it might not make sense to refinance your loans at this time.  As part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act that was passed by Congress on March 27th, most federal student loan borrowers will receive a six-month reprieve from making payments. Additionally, interest won’t accrue during that time and there won’t be any impact to your credit score for skipping these payments. Contact your lender directly to find out if your loans qualify for payment relief. (See our COVID-19 Student Loan FAQ for more information.)

Start with the FAFSA

FAFSA stands for Free Application for Federal Student Aid. Regardless of your income, it's important to apply. You could be offered grants for college, or you may be eligible for some federal student loans. But you can only access federal student loans when you complete the FAFSA.

What are Federal Student Loans?

Federal student loans include Direct Subsidized Loans in which the government pays the interest on the loan while you're in school, Direct Unsubsidized Loans, and Direct PLUS Loans for graduate and professional students. There is also a Direct PLUS Loan for parents.

A federal student loan is made by the U.S. government. The terms and conditions of these loans are set by law. They include borrower protections, such as fixed interest rates, income-driven repayment plans, deferment and forbearance during financial hardship, and some loan forgiveness. In addition, you won’t begin making payments on federal student loans until you graduate, leave school, or enroll less than half-time.

Federal student loans can be consolidated into a federal Direct Consolidation Loan as well as refinanced by private lenders. While refinancing can help you save money every month and over the life of the loan, you could lose some of the protections offered by the U.S. government.

When to choose a private student loan

Whether paying for school or refinancing after graduation, private student loans have some advantages over federal options. First, private loans often cost less in total interest over the life of the loan, but you will likely be required to make interest-only or full payments while still in school. And second, private student loan applications are not limited to a time of year or your financial need.

To qualify for a private student loan, you simply go to a lender and apply. How much you can borrow, as well as your interest rate and term, will depend on the lender and your credit score (or the credit score of your co-signer) — not the cost of the college you want to attend. If you have your heart set of a specific college that federal loans cannot cover in full, private student loans could be the best option.

Finally, refinancing private student loans is often a simple solution to help lower your interest rates and save thousands. However, private student loans cannot be moved to a federally backed Direct Consolidation Loan.

Need help deciding?

You'll find advice on saving and borrowing money for college in the First Tech Financial Wellness Center. Already have a student loan and looking for ways to reduce your monthly payments and how much you'll end up paying overall? We can help with special student loan refinancing options. Stop by any branch or give us a call at 855.855.8805.