Comparing Federal and Private Student Loans

Federal student loans, such as the Federal Direct Loan and the Parent PLUS Loan, generally have more favorable terms and conditions than private loans. We recommend using all federal loan eligibility before turning to private loans.

We will hold the processing of a private alternative loan until you:

  1. Complete the FAFSA or,
  2. Notify us that you do not want to take advantage of federal student loan options and want us to proceed with certifying your private alternative loan.
  Federal Private 
Repayment You will not have to start repaying your federal student loans until you graduate, leave school, or change your enrollment status to less than half time.
 Many private student loans require payments while you are still in school. 
Interest Rates The interest rate is fixed and is often lower than private loans-and much lower than some credit card interest rates. Private student loans can have variable interest rates, some greater than 18%. A variable rate may substantially increase the total amount you repay.
Subsidized Loans Undergraduate students with financial need will likely qualify for a subsidized loan where the government pays the interest while you are in school on at least a half-time basis.
 Private student loans are not subsidized. No one pays the interest on the loan but you. 
Credit You don’t need to get a credit check for most federal student loans (except for PLUS loans). Federal student loans can help you establish a good credit record. Private student loans may require an established credit record. The cost of a private student loan will depend on your credit score and other factors.
Cosigner You won’t need a cosigner to get a federal student loan in most cases.
 You may need a cosigner. 
Tax Deduction Interest may be tax deductible. Interest may not be tax deductible. 
Payment Options If you are having trouble repaying your loan, you may be able to temporarily postpone or lower your payments.
 Private student loans may not offer forbearance or deferment options. 
Repayment Plans There are several repayment plans, including options to tie your monthly payment to your income. You should check with your lender to find out about your repayment options. 
Penalty Fee There is no prepayment penalty fee. You need to make sure that there are no prepayment penalties.
Loan Forgiveness You may be eligible to have some portion of your loans forgiven if you work in public service.
 It is unlikely that your lender will offer a loan forgiveness program. 
Assistance Free help is available at 1-800-4-FED-AID and on The Consumer Financial Protection Bureau’s private student loan ombudsman ( may be able to assist you if you have concerns about your private student loan.
Lender ChoiceDirect Federal Loans are provided by the department of Education.
Borrower can select a private educational lender of the borrower’s choice
Right to CancelBefore your loan money is disbursed, you may cancel all or part of your loan at any time by notifying your school. After your loan is disbursed, you may cancel all or part of the loan within certain time frames. Your promissory note and additional information you receive from your school will explain the procedures and time frames for canceling your loan.
In Illinois, the borrower has an additional 30-day period after the initial 3 day right to cancel period.

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