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What Is the Difference Between Private and Federal Student Loans?

How to Pay for College > What are the Types of Aid Available? > Loans > What Is the Difference Between Private and Federal Student Loans?

Both federal and private student loans can help you pay for college, but comparing the two can be challenging. Here are some key differences.

What are Federal Loans?

The government offers five different loans to help qualifying college students pay their expenses. While the loans are given through the school, these are federal programs.

  • Direct Subsidized Loans: Also known as Subsidized Stafford Loans, these are for undergraduate students with financial need. The federal government subsidizes some of the interest payments that these loans incur.
  • Direct Unsubsidized Loans: These are available for undergraduate, graduate, and professional students. It isn’t necessary to demonstrate financial need.
  • Direct PLUS Loans: This loan program is for parents of undergraduate students as well as graduate or professional students.
  • Direct Consolidation Loans: This is a new loan that consolidates all of your existing federal loans under a single umbrella.

In order to apply for a federal loan, students must file a FAFSA® for federal financial aid.

What are Private Loans?

Private loans are given through a bank or other financial institution. While they are still considered “student loans” when taken out for the purpose of paying for college, your eligibility is not determined by your school.

The private lender will require a credit check. That means you’ll need good credit history to qualify for a loan at all, and great credit history to get a good interest rate. If you have insufficient credit history you may need to recruit a cosigner, such as a parent or grandparent, who agrees to pay off the loan if you are unable to do so.

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