There are two types of student loans you can get to pay for college: federal and private.
While both types of loans can help pay for your college expenses, they each have different terms, conditions, forgiveness options, and repayment options available.
Issued by the government, federal student loans typically offer more payment flexibility and forgiveness options. In contrast, private loans, available from banks, credit unions, and other financial institutions, come with varying interest rates and payment terms.
When comparing federal versus private student loans, it’s important to understand how each of them works.
Moreover, consider what the benefits are, what the limitations are, and how you can apply for them.
Federal vs. Private Student Loans
| Federal student loans | Private student loans | |
|---|---|---|
| Interest rates | Fixed rates between 6% and 9% | Variable or fixed rates from 3% to 20% APR (or higher), depending on credit score and qualifications |
| Loan terms | 10 years | 5 to 20 years, depending on the loan |
| Maximum loan amount | $31,000 for dependents $57,500 for independent undergraduate $138,500 for graduate program | Up to the total cost of attendance |
| Loan benefits | Subsidies available Income-driven repayment Grace period available Forgiveness options available Hardship assistance options | Flexible loan terms May have lower rates |
| Consolidation and refinancing | Can be consolidated into a Direct Consolidation Loan | Can only be refinanced |
| Loan forgiveness | Multiple options | Typically no |
| Best for? | Most student borrowers | Borrowing amounts not covered by federal loans. Borrowers with great credit can lower their interest rates |
How Federal Student Loans Work
The government provides low-interest loans to qualified borrowers through federal student loans. Both students and parents can apply for federal loans, and you don’t need a credit score to qualify.
There are several types of federal student loans available:
Types of federal student loans
- Direct subsidized loans: Undergraduate students who qualify for “financial need” can get subsidized loans where interest does not accrue while in school and during deferred or grace periods.
- Direct unsubsidized loans: Undergraduate students who don’t qualify for “financial need” can get unsubsidized loans. These accrue interest while in school and during payment deferment and grace periods.
- Direct PLUS loans: There are two types of PLUS loans. Grad PLUS loans are for graduate students and professionals pursuing advanced degrees. Parent PLUS loans are for parents of students, providing financial assistance for their child's education.
Effective July 1, 2026, new borrowers will have a total lifetime borrowing limit of $257,500 for all federal student loans.
Parent PLUS loans will be capped at $20,000 per year per student with a $65,000 lifetime limit, and Grad PLUS loans will be eliminated.
Obtaining the loan
To apply for federal student loans, students and/or parents will need to fill out the Free Application for Financial Student Aid (FAFSA). This application helps determine eligibility for subsidized and unsubsidized loans, and any federal grant programs available.
After turning in the FAFSA, you can review your loan options and select your loan amounts and terms.
Loan amounts
Federal student loans have limits on the loan amounts, depending on your chosen loans and program.
- Undergraduate loans (dependent students): Up to $31,000 in total loans, with no more than $23,000 in subsidized loans.
- Undergraduate loans (independent students): Up to $57,500 in total loans, with no more than $23,000 in subsidized loans.
- PLUS loans: Up to $138,500 in total loans, including no more than $65,500 in subsidized loans. These loan totals encompass amounts borrowed for undergraduate study.
Interest rates
Interest rates on federal loans are fixed and set per school year. Current interest rates for the 2025-2026 school year are as follows:
- Direct subsidized and direct unsubsidized loans: 6.39% APR
- Direct unsubsidized graduate or professional loans: 7.94% APR
- Direct PLUS loans (parent or graduate/professional): 8.94% APR
Repayment terms
Standard repayment terms for federal student loans are set to a 10-year repayment schedule. But you can choose between several other repayment options, including:
- Graduated repayment. A 10-year repayment schedule where payments start lower, and then increase over time.
- Extended repayment. Fixed or graduated repayment schedule that can be extended up to 25 years.
- Income-driven repayment. Several plans adjust your payment based on your discretionary income and family size. These plans can extend payments up to 25 years in length, and the remaining balances may be forgiven.
How Private Student Loans Work
Private lenders such as banks, credit unions, and fintechs also provide student loans.
They typically determine rates and terms based on your creditworthiness by assessing your credit score, income, debt-to-income ratio, and other financial factors.
Obtaining the loan
To apply for a private student loan, you need to find an online lender or bank that offers the type of loan you are looking for. Online lenders typically offer the best rates, but you must have excellent credit to get the lower rates.
You can apply for private student loans online by submitting your personal and financial information. Many private lenders offer a “pre-qualification” tool that does a “soft” credit check first and will show you your potential rates and loan terms before completing a full application.
Loan amounts
Many private lenders offer up to 100% of your college costs with no caps on the loan amount. Others, however, may cap the total amount that can be borrowed at around $250,000 for undergraduate and up to $500,000 for graduate loan totals.
To determine the loan amounts available for your college costs and program, you'll need to consult with your lender.
Interest rates
Interest rates on private student loans are tied to your creditworthiness and financial situation. Rates can vary significantly, ranging from as low as 3% APR to as high as 20% APR or even higher.
Some popular lenders to consider with low starting APRs include College Ave, Earnest, and SoFi student loans.*
Borrowers with excellent credit and a substantial income stand a better chance of qualifying for the lowest rates.
Rates can be variable or fixed. Variable interest rates go up or down, usually dependent on the Federal Funds rate and other factors. Fixed rates stay the same for the entirety of the loan.
READ MORE: How Does Student Loan Interest Work?
Repayment terms
Private lenders typically offer more repayment term options than federal loans, spanning from 5 to 20 years.
Some lenders allow you to choose your loan term and set the payment accordingly.
Pros and Cons of Federal Student Loans
If you're considering a federal student loan, be sure to consider both the benefits and drawbacks before you apply.
Pros
- Subsidies, allowing borrowers to avoid interest during school and grace periods
- Several loan forgiveness programs available
- Fixed interest rates typically lower than many private lenders
- Income-driven repayment plans
Cons
- Origination fees, which are charged upfront
- Borrower limits may not cover the total costs of college
- Loan servicer is chosen for you
- Interest rates are set by the government, and can’t go lower based on your credit profile
Pros and Cons of Private Student Loans
Whether you're considering private loans because you're not eligible for a federal student loan, or because you need to borrow a larger amount for your education, it's important to understand how going with a private lender can impact you.
Pros
- Flexibility to tailor your repayment plan to better suit your financial circumstances
- Lower interest rate if you have excellent credit
- You can borrow more to cover the full costs of college
Cons
- No student loan forgiveness programs
- No income-based repayment options
- Higher interest rates
- While the government can pause payments on federal loans during national emergencies, private loans may lack this option
FAQs
Is it better to have federal or private student loans?
Federal student loans offer borrower protections, greater flexibility, and potential subsidies. Typically, students with limited credit history can obtain lower fixed interest rates through federal loans. Conversely, private loans suit borrowers with excellent credit who require no forgiveness options and intend to rapidly pay down their loans.
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* Interest Rates: Eligibility and Important Details. Fixed rates range from 3.43% APR to 15.99% APR with 0.25% autopay discount. Variable rates range from 4.64% APR to 15.99% APR with a 0.25% autopay discount. Unless required to be lower to comply with applicable law, Variable Interest rates are capped at 17.95%. SoFi rate ranges are current as of 1/28/2026 and are subject to change at any time. Your actual rate will be within the range of rates listed above and will depend on the term and type of repayment option you select, evaluation of your creditworthiness, income, presence of a co-signer (if applicable) and a variety of other factors. Lowest rates reserved for the most creditworthy borrowers. Check out our eligibility criteria at https://www.sofi.com/eligibility-criteria/. For the SoFi variable-rate product, the variable interest rate for a given month is derived by adding a margin to the 30-day average SOFR index, published two business days preceding such calendar month, rounded up to the nearest one hundredth of one percent (0.01% or 0.0001). APRs for variable-rate loans may increase after origination if the SOFR index increases. The SoFi 0.25% autopay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. This benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. The benefit lowers your interest rate but does not change the amount of your monthly payment. This benefit is suspended during periods of deferment and forbearance. Autopay is not required to receive a loan from SoFi. SoFi Private Student loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).
