According to the Pew Research Center, approximately one-third of Americans under the age of 30 have student loan debt. With over 45 million borrowers across the nation, the collective figure for student loan debt amounts to an astounding $1.6 trillion.

If students aren’t careful about selecting the right loan and taking subsequent measures to reduce/alter it post-graduation, they may find themselves struggling to make timely payments and risk financial insecurity.

Navigating the two options (federal and private loans) and carefully considering the respective loan management plans for each is imperative to ensure stress-free and convenient loan repayment.

The ongoing COVID-19 pandemic has led to further modifications and updates in both federal and private loans. If you’ve been struggling to familiarize yourself with the basics while keeping abreast of recent amendments, we’ll help break everything down.

Federal vs. Private Loans: What’s the Difference?

Federal student loans are offered by the government; to be more specific, the U.S. Department of Education. All borrowers receive the same fees and rates that are initially set by the Congress.

In addition, you get access to a wide range of borrower protections and forgiveness programs. You can easily obtain a loan without requiring a good credit score or a cosigner.

In contrast, private student loans are offered by private organizations, including banks, credit unions, financial institutions, state loan agencies, or even some schools. Private student loans are designed to cover all the bases left by federal funds. This means graduates or former students can make the most of high loan limits and low interest rates (provided they apply with a creditworthy cosigner).

In many cases, private student loans also cover the total Cost of Attendance (COA), which is usually excluded from federal loans.

In addition, borrowers are granted generous discounts depending on their academic and/or credit standing, which further reduces the interest rate.

Should I Opt for Federal Student Loans?

Federal vs. Private Student Loans


In light of the COVID-19 pandemic, the House of Representatives recently passed the HEROES Act, which offers a wide range of student loan relief provisions. However, many Senate Republicans rejected the bill and deemed it “dead on arrival,” thereby eliminating any chance of passing it in its current form.

While there have been several attempts to offer substantial federal student loan relief, only a handful have been successful.

Taking these amendments into consideration is essential to reduce the risk of getting blindsided by the massive uncertainty surrounding federal student loans amid the current COVID-19 landscape.

We suggest carefully weighing the pros and cons to make an informed decision that facilitates loan repayment in the long run.

Types of Federal Loans

While there are several federal student loan options, these are generally distributed among the following categories:

  • Direct Subsidized Loans: Offered to undergraduate students with exceptional financial need
  • Direct Unsubsidized Loans: Offered to undergraduate and graduate borrowers regardless of financial need
  • Direct PLUS Loans: Offered to graduate students or parents of undergraduate students based on a credit check (financial need isn’t required)
  • Direct Consolidation Loans: Two or more federal student loans combined into a single loan with a fixed interest rate

The interest loan for federal student loans has dropped to 2.75% from 4.53%. While this doesn’t apply to existing federal student loans, students who are interested in taking a loan in 2020–2021 can make the most of this drop.

However, we suggest assiduously examining the current benefits and checking whether they apply to you.

In addition, determine whether the programs will actually help you in the long run. If not, we strongly suggest opting for private student loans that offer greater long-term stability. This will prevent you from potentially falling between two stools as fluctuations and unexpected amendments to federal student loan rates continue.

Should I Opt for Private Student Loans?

Federal vs. Private Student Loans

Private student loans offer a lot of flexibility and protection that isn’t always provided by federal student loans. If the benefits offered by the government aren’t favorable or applicable to you, we suggest branching out and looking for a reputable private student loan lending company.

In addition, private student loans are also a great option for students who require additional assistance after maxing out federal loans. With affordable rates and flexible terms, you can take a substantial loan without worrying about loan origination fees and application fees.

Borrowers can save time and energy by undergoing a quick application process as they aren’t obligated to file the Free Application for Federal Student Aid (FAFSA).

Many reputable private loan lenders have stepped up during the ongoing COVID-19 crisis and offered their own form of additional financial assistance to borrowers. Credible low interest rates and high borrowing limits offer students enhanced convenience at a time when many students require a substantial amount of financial assistance.

Additional features of private student loans include:

  • Variable or fixed interest rates to help students find affordable options based on their circumstances
  • Extensive loan consolidation and refinancing options
  • Suitable loan terms
  • No prepayment penalties
  • Generous interest rate discounts

Students or parents with a good credit score are especially encouraged to opt for private loans as they can receive extremely low interest rates, which may not be possible in the case of federal loans.

In fact, according to Brendan Coughlin (president of Consumer Deposits and Lending at Citizens Bank), over 50% of Americans applying for student loans can qualify for a better rate if they opt for private loans.

Repayment: Federal vs. Private Student Loans

Federal vs. Private Student Loans


When it comes to loan repayment, private student loan lending companies offer a wide range of flexible repayment plans. Students and parents can defer repayment until six months post-graduation.

In addition, they can choose lower monthly payments depending on their terms. This is a great way to pay loans quicker.

Federal student loans have equally beneficial loan repayment packages, including income-driven repayment plans and deferment.

We suggest weighing the pros and cons of each option to decide the right solution that fits your requirements.

If you’re still unsure, get in touch with a Education Loan Finance advisor for further assistance so you can make an informed and well-suited decision.

About the Author

The author is a renowned student loan advisor for ELF I (Education Loan Finance). Over the past few years, they’ve worked closely with students and parents to determine the right private loan plan based on their needs. They also offer assistance in student loan refinancing.

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