Should I choose federal student loans or private student loans?

updated 8/9/2013

If you must take out student loans, federal student loans are the best option for the vast majority of borrowers. It is best to max out your federal student loan options before you borrow any private student loans. Federal student loans usually carry more flexible protection if you run into difficulty in repaying your loans, and all new federal student loans have fixed interest rates, meaning the rate does not change over the life of your loan. Private student loans generally have variable interest rates, which can reset every month or quarter, causing your monthly payments to change.

However, there are rare cases where a private loan could be a viable alternative to a Federal Grad PLUS loan. This may occur if you:

Are a graduate or professional school student with a high certainty of job placement

Have a very high credit score

Can borrow at interest rates substantially lower than 6.41 percent

Are completely committed to finishing the degree program on time

Have a specific plan to repay your loans within a few years of graduation (rather than repaying over 10 or more years, increasing the risk of the rate increasing)

Have already borrowed as much as you can under the Direct and Perkins Loan programs

If you have ALL of the above characteristics, you may want to consider private student loan options instead of Federal Direct Grad PLUS loans. A private loan may be better for a student with ALL of these characteristics for a number of reasons: a private loan may have a lower initial interest rate; as a graduate or professional student, you may be more certain of your job prospects and earning potential; and rate changes may have less impact if you expect to quickly repay the loan.

More information on

These answers are provided for general informational purposes only. While they can’t give you advice for your exact situation, we hope they can help you understand financial products and services better. They are not legal advice or a legal interpretation of the CFPB.