Federal student loans vs. private loans
Also avoid using credit cards to pay for your education. Interest rates on credit cards are
very high, payments are due every month, and usually don’t oﬀer diﬀerent repayment
and deferment (temporarily postpone payments) options.
Sources of ﬁnancial aid
Federal student loans
(loans from the federal government through
the U.S. Department of Education)
Private student loans
(nonfederal loans from a bank, credit union,
or other ﬁnancial institution)
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 (see page 24).
Many private student loans require payments while
you are still in school.
The interest rate is ﬁxed and is almost always lower than private
loans—and much lower than credit card interest rates. For loans
ﬁrst disbursed on or after July 1, 2010, and before July 1, 2011,
the interest rate is 4.5% for subsidized loans for undergraduate
students and 6.8% for unsubsidized loans for undergraduate
and graduate students. The rate for subsidized loans made to
graduate students is 6.8%.
Private student loans can have variable interest
rates, some greater than 18%.
Students with greater ﬁnancial need might qualify for a
subsidized loan. The government pays the interest.
Private student loans are not subsidized.
No one pays the interest on your loan but you.
You don’t need to pass a credit check to get a federal
student loan (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 depends on your
credit score, which you may not yet have as a student.
You don’t need a co-signer (except for PLUS Loans) to get
a federal student loan.
You may need a co-signer to get the best possible deal.
Free help is available at 1-800-4-FED-AID and on our
websites. You also have 24/7 access to your loan account
information via the Internet.
You need to ﬁnd out if there is free help.
Some interest is tax deductible.
Interest may not be tax deductible.
Loans can be consolidated into a Direct Consolidation Loan.
See www.loanconsolidation.ed.gov or page 33 for more
information on consolidation loans and to see if this option will
Private student loans can’t be consolidated into
the federal loan consolidation program.
No prepayment penalty fee.
You need to make sure there are no prepayment
Maximize the Sources of Aid You Don't Have to Repay
MONEY YOU DO NOT HAVE TO REPAY
1. Scholarships and Grants
3. Work-Study Earnings
4. Federal Student Loans
• Perkins Loans
• Direct Subsidized Stafford Loan
• Direct Unsubsidized Stafford Loan
• PLUS Loans
5. Private Educational Loans
6. Home Equity Loans
7. Credit Cards
Source: Consumers Union. July2007. Helping Families Finance College: Improved Student Loan Disclosures and Counseling. Yonkers, NY.