Federal Loan vs. Private Loan – Which One is Best Student Loan?

Are you looking to get admission to any of the leading US universities? Have you checked whether to take a federal loan or go for a private one? Making a decision and processing for the best student loan is quite a long and complicated process. 

Anyone without much experience in the field will require the required guidelines. Here, you will get a complete idea about both types of loan. A comparative study of federal student loan and private loans will be beneficial for the prospects. 

What is a Federal loan? 

The Federal Government of the US directly fund this loan, and any student looking to apply for this loan need to fill up the Free Application for Federal Student Aid (FAFSA) to start with. A list of varieties is available in trusted federal student loan programs to choose from as per your requirement. The government approves the loan when your eligibility criteria match with the set norms. You must know how to apply for a student loan

Some of the common variety in federal student loan are:

  • Direct subsidized loan for undergraduate students where the students need the loan but cannot provide the interest they are in school and not earning. 
  • Direct Unsubsidized loan for both graduate and undergraduate students who are eligible for the loan. But students did not require to provide their documents describing their needs.
  • Undergraduate and graduate students with acute need of the loan get Perkins loan. No credit history is required to apply for this loan, making it feasible for international students.
  • Direct PLUS loans are for undergraduate students and their parents jointly. 

What is a Private Student Loan? 

Besides, private lending organizations come forward to provide loans to the students who require financial aid to continue their studies. Here, it would be best if you had a good credit score and responsible co-signer to get the approval of the loan. You can apply for the loan with your parents as co-signers who might have a better credit score and income certificate to verify if you are still in the undergraduate section. 

The application process is much easier than the federal loan. Private loans are also available in different types, which have separate eligibility criteria to fulfil. You need to identify the best student private loan to finance your higher education- 

  • A private undergraduate student loan is like all other loans where your credit score and income review are necessary as eligibility criteria. The lenders check whether you can return the money with interest within the repayment term. Applying with a co-signer is necessary for undergraduate students.
  • A private parent student loan offers the loan to the parent who is financing their child’s education. This is very similar to a federal family education loan. In this case, the student is not supposed to pay off your loan. 
  • Private Graduate Loans is similar until the student is working and has a good credit score to get the loan without a co-signer at the lowest rates

Comparative Analysis between Best Student Loan Option 

Both the federal student loan and private loans follow some specific guidelines to complete the procedure for aspiring students. Here the loans will be compared regarding every aspect- 


The best student private loan has specific guidelines in terms of eligibility. Most important among them is the high credit score and co-signer existence as the students are not earning until now. In this perspective, the students and parents both need a good credit score to become eligible for the loan.  As a co-signer, the parent also takes the same responsibility to pay back the loan amount. 

In the case of a federal student loan, you need to fill up the FAFSA to apply for the loan. So, it would be best if you met the eligibility criteria mentioned by the department of education, Federal Government. 

Interest rates 

You need to select the most feasible repayment option to return the money. But you need to pay the interest also, so you must consider the monthly payments of both types before making your decision. 

Commonly, two kinds of interest rates are available for repaying the loan amount, one is varied, and another is the fixed interest rate. The fixed one is feasible for a student who has to repay the money—the best student private loan asks for at least 7.99% interest from students with a good credit score. In contrast, the federal student loan interest rate is 4.45% for undergraduates and 6% for graduate students. The private lenders can ask for a variable rate, but the federal student loans keep the interest rates fixed.Grow your online visibility 

Loan repayment option 

When compared, it is clear that the repayment options are much less in private student loans than the federal student loan. The private lenders never allow for forgiveness in the repayment, whereas federal student loan forgiveness is common for students who cannot afford to pay back the amount under difficult circumstances. 

The private lenders offer opportunities to the students to consolidate among the loans. This is tricky but useful. You can take another loan within the period of repaying the first one, and with the consolidation of both, you get more time to pay back the money within the life of the loan. The federal student loan consolidation can be possible depending on several criteria. Private lenders offer assistance in repayment plan instead of forgiveness. 

If you cannot pay the money for different reasons, terms as ‘Cancelled’ and ‘discharge’ are used in federal student loan repayment. Any parent or student’s permanent disability or death makes you eligible for this forgiveness from the Federal government. 

The trusted federal student loan also allows you a grace period when you don’t need to pay anything six months after the graduation is complete. The government allows you to get a job and settle yourself before you pay back the loan. 


If you have not returned the money completely from your previous loan, you can refinance and extend your return time again in the vase of private loans. But sometimes, borrowers can choose to refinance with Federal loans. The co-signers get relieved as well as the student loans interest rates get minimized with federal ones. 

You can also switch from a federal one to some private loan. You need to use federal student loans login for this transfer. In that case, besides the changing interest rates, you will also no longer be eligible for forgiveness and repayment based on income that you received earlier. All these securities and benefits are strictly restricted to the federal student loan. 

Financial Need 

When students apply for a federal loan of specific types, they need to establish their financial needs. This need is based on your cost of attendance like tuition fees, attendance, room charges, etc. 

This is compared to some factors like your parent’s income, how many siblings are attending schools, any assets your parents have, or any financial aid your family receives. This helps the department assess your financial need, and based on that, and federal student loan servicers approve your application. 

When you are applying for a private loan, you don’t need to show such need. It gets clear with your initiative to get a private loan. Most students apply for a federal loan, and when you are looking for the private one, you must have exhausted that option. So, you need this amount.

Read- How to Get the Affiliation Letter for a Student Loan in the USA?



You need to find out how federal loans at this time of covid-19 emergency support the students to continue their studies. But this loan has some specific limitations to maintain the help for everyone. You can annually take a specific amount as a loan from the Federal government. Also, you have a specific amount that you can borrow in your entire academic life. For private loans, if your credit score and the co-signer are not up to the eligibility mark, you cannot get the amount you wish to get. 


In your journey to discover best student loan suitable for your need, you have understood the procedure for both available options. Both have some positive and some complicated aspects. In totality, Federal loans are a better option for the students as you are getting the security and different benefits from the Government. But when you succeed with your federal amount and need more, you need to go for the private loans. 

Private loans can be tricky for loan terms, interest rates, and other aspects, but you may sometimes find it easier than federal loans. But still, comparing the different perspectives due to easy return and better opportunity, federal loans are best suitable for students. The private loans are not even subsidized, whereas some of the federal loans are subsidized. The federal student aid partners provide better opportunities for the students and their parents to pay back their loans. 

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