What changes if your student loan is private instead of federal?

Summary

Mostly, it changes what you can fall back on if the payments get hard, and what you give up if you refinance. Federal loan terms are written into law: the rate is fixed, and there are income-based repayment plans and forgiveness for public service work. A private loan's terms are whatever the lender sets, and the rate can be variable. Federal loans all show up in one place on StudentAid.gov; private loans do not, so you trace them through your paperwork and your credit report.

Who writes the terms

The federal government funds federal student loans, and the law sets their terms. A private student loan comes from a bank, a credit union, a state agency, or a school, and that lender sets the terms. A loan from a state agency or a college can still be private. Federal Student Aid says private loans are generally more expensive.

A few of the differences carry more weight than the rest:

Credit. Federal student loans need no credit check, except PLUS loans. Private lenders often want an established credit record or a cosigner.
Payments in school. Federal payments start after you graduate, leave school, or drop below half-time. Many private loans bill you while you are still enrolled.
Repayment and forgiveness. Federal loans have plans that tie the payment to income, and part of the balance can be forgiven after public service work. Many private lenders offer no forgiveness at all, though some state agency loans can be forgiven in certain cases.
Prepayment. Federal loans have no prepayment penalty. With a private loan, you have to read the contract to know.

A Parent PLUS loan is federal too, and the parent owes all of it, even though the money pays for the student's education.

Where each kind of loan shows up

The Consumer Financial Protection Bureau calls Federal Student Aid's website the definitive source for federal loan information. Log in to StudentAid.gov and you can see your federal loans and the servicer that bills you for them.

There is no single website for private loans. The CFPB points to the original paperwork, such as a promissory note or disbursement notice, for the servicer's name. Your credit report may list the lender or servicer, and your school's financial aid office may be able to help. Private lenders can report a loan to the credit bureaus while you are still in school or in deferment.

Federal loans have servicers too, so the company name on a bill does not settle the question. Older federal loans made under the Federal Family Education Loan (FFEL) Program are still federal debt. No new FFEL loans have been made since June 30, 2010, and the Department of Education still publishes the rates on the ones that remain.

The one move that turns a federal loan private

Federal student loans cannot be refinanced inside the federal aid system. The closest thing is a Direct Consolidation Loan, which rolls federal loans into one loan with a fixed rate and a single monthly payment. A private lender can refinance federal loans, and according to StudentAid.gov that takes them out of the federal system and ends the benefits that came with them.

Private loans have fewer ways out. They cannot join a Direct Consolidation Loan, so changing their terms means refinancing with another private lender. The rate a refinance lender offers falls somewhere in a published range, and the lender list and calculator on this site show what the top of each range costs over the life of the loan.

Sources

Written by Kaz (pen name). Figures are copied from the sources' published pages on the dates shown. We have not used these products. Corrections: contact form.