The key differences
FeatureFederalPrivate
ProviderU.S. Department of EducationBanks, credit unions, agencies, online lenders
RatesFixed by law for each disbursement yearFixed or variable; based partly on credit
Credit reviewNot required for most Direct loansGenerally required
RepaymentFederal plans and protections may applyVaries by lender and is generally less flexible
ForgivenessMay be available under qualifying programsGenerally unavailable
Why federal aid generally comes first
Federal loans can carry repayment plans, deferment or forbearance rules, and possible forgiveness that private lenders do not typically match. Those protections can matter more than a small difference in starting rate.
When families explore private loans
A private loan may be considered after grants, scholarships, savings, payment plans, and available federal loans still leave a school-certified gap.
Refinancing can be irreversible.
Refinancing federal loans with a private lender can permanently remove federal protections and program eligibility.