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After grants and scholarships, government student loans, more commonly known as federal student loans, should be your next choice to pay for college. They’re generally less expensive and more generous than private student loans. And you don’t need good credit or a co-signer to get them.
» MORE: Your guide to financial aid
Lower rates and fees
Federal student loans generally have lower interest rates than private loans. Rates for new federal loans are also fixed, meaning they’ll stay the same during your entire loan term.
Private loans frequently offer variable rates, which increase whenever the Federal Reserve raises the interest rate benchmark. If you have a choice, a fixed-rate private loan is usually the better option.
Student loan refinancing can get you a lower interest rate if you have strong credit and income once you leave school. It can also help you turn variable-rate private loans into a safer fixed-rate loan.
You don’t need good credit
Private loans require credit history to show you’re likely to repay the loan on time. They’ll also use your credit score to determine what interest rate you’ll get. But most undergrads will have short credit histories and low credit scores, if they have scores at all.
Federal loans, on the other hand, are available to any enrolled undergraduate. The only type of federal loans that require a credit check are direct PLUS loans, available to graduate students and parents.
Before turning to private loans, take out the maximum amount of federal loans. Start by submitting the Free Application for Federal Student Aid, or FAFSA.
If you need a private loan to cover a funding gap for school but don’t have good credit, a handful of lenders may work with you.
» COMPARE: Student loans for bad or no credit
You don’t need a co-signer
High school seniors and college students without long credit histories can still qualify for private loans if they have a co-signer, usually a parent or another adult who agrees to pay the loan balance if the student can’t. But that responsibility can be onerous on the co-signer. Look for a private loan that offers co-signer release after a certain number of payments.
Because federal loans aren’t credit-based, they don’t require a co-signer, meaning your family members won’t have to be concerned about covering loan payments if you can’t.
» COMPARE: Student loans without a co-signer
More time to pause payments
Federal loan deferment lets you postpone payments due to economic hardship for up to three years, while private student loans generally aren’t as flexible. It’s common for private lenders to offer payment postponement for 12 months, for instance, in three-month increments. Look for lenders that offer more.
Less interest accrues on subsidized loans
Students who have high financial need qualify for federal direct subsidized loans. The government pays the interest on subsidized loans when they’re in deferment — while you’re in school, in your grace period and if you take a break from payments.
Private loans don’t have this benefit. Interest starts accumulating on private loans — and on unsubsidized federal loans — as soon as they’re paid to you.
Access to income-driven repayment
Federal student loans make it easy to lower payments if you need to. Apply for income-driven repayment and you’ll pay a percentage of your income each month — or $0 if you have none. Reapply every year, and make sure you’re on the plan that makes the most sense for you.
Private student loans are harder to catch a break on. Your best bet is to call your lender or servicer and ask for interest-only payments or an interest rate reduction for a period of time.
More time before student loan default
Some private student loans go into default nearly as soon as you miss a payment. While private lenders don’t have as much power as the federal government does to recover the money you owe, missing payments will damage your credit, and you could be sued by the lender.
Federal loans give you more time to get your payments on track if you fall behind. Your loans aren’t considered “delinquent” — and you won’t be reported to the credit bureaus — until you’ve missed three months of payments. Your loans will go into default after nine months of missed payments, and at that point, the government can take money from your paycheck or tax return to recover your debt.
You don’t need good credit to consolidate
If you have multiple federal loans, you can easily consolidate student loans into one payment. Federal consolidation also makes some loans eligible for Public Service Loan Forgiveness and income-driven repayment plans. But it won’t save you money, since its rate is determined by a weighted average of your prior loans’ interest rates.
You can also consolidate and refinance student loans through a private lender, which might lower your interest rates based on your credit and income. But refinancing means losing access to the benefits of federal students loans.
More forgiveness options
Private loans generally don’t offer forgiveness opportunities: You’re responsible for repaying the full balance. But federal loans can be dissolved if you participate in an income-driven repayment plan or work at a nonprofit or for the government. Public Service Loan Forgiveness forgives federal loans after 10 years. Perkins loan borrowers who work in public service can see forgiveness after an even shorter time.
Guaranteed loan cancellation if you die
Federal students loans are discharged if you die or become permanently disabled. Any parent PLUS loans taken out on your behalf will also be canceled if the parent who holds them dies.
Death discharge isn’t a guarantee for private loans, though more lenders are offering it. Before taking out a loan, double-check your loan agreement to see what will happen if you or your co-signer dies.
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