The answer is almost always the same: exhaust federal loans first, then consider private only if you still have a funding gap. But understanding why matters — because the exceptions are real, and the consequences of getting it wrong are expensive.
| Feature | Federal | Private |
|---|---|---|
| Interest rates (2025–26) | 6.39%–8.94% fixed | 4%–17% variable or fixed |
| Credit check required | No (except PLUS) | Yes |
| Income-driven repayment | Yes | Rarely |
| Loan forgiveness eligible | Yes (PSLF, IDR) | No |
| Deferment / forbearance | Broad options | Limited |
| Subsidized option | Yes (undergrads) | No |
| Discharge in bankruptcy | Extremely difficult | Extremely difficult |
Federal loans come with protections that private loans simply do not offer. These protections can be worth thousands of dollars over a repayment period and are impossible to get back once you have crossed into private borrowing.
Income-driven repayment (IDR). If your income drops — due to job loss, career change, or life circumstances — federal IDR plans cap your monthly payment at a percentage of your income. Private lenders generally do not offer this. A $600/month private loan payment does not shrink because you got laid off.
Public Service Loan Forgiveness (PSLF). Work for a government or qualifying nonprofit employer for 10 years, make 120 qualifying payments, and your remaining federal balance is forgiven. Private loans are completely excluded from PSLF. For teachers, nurses, social workers, and government employees, this distinction can mean six-figure forgiveness.
Subsidized loans for undergrads. Direct Subsidized Loans do not accrue interest while you are in school at least half-time or during deferment periods. The government pays your interest. There is no private loan equivalent to this.
No credit check for most borrowers. Undergraduate federal loans do not require a credit check or cosigner. Private lenders require both, and borrowers with limited credit histories typically get the highest rates.
These rates are fixed for the life of the loan and set annually. Private loan rates vary widely based on credit score, ranging from around 4% for strong borrowers to 17% or higher for weaker credit profiles — and many are variable, meaning they can rise over time.
Federal loans have annual and lifetime borrowing caps. Undergraduates can borrow $5,500 to $7,500 per year depending on year in school and dependency status, up to a lifetime maximum of $31,000 for dependent students or $57,500 for independent students. Graduate students can borrow up to $20,500 per year in unsubsidized loans, plus PLUS loans up to the full cost of attendance.
If your school costs more than the federal limits cover, that is when private loans enter the picture — filling the gap after federal aid, grants, scholarships, and savings are applied.
Private loans are appropriate in specific circumstances:
Even in these cases, borrow the minimum amount needed. Private loan debt has no safety net.
Calculate your total loan cost before you borrow another dollar.
Student Loan Calculator →Refinancing federal loans into a private loan converts them permanently. You lose access to income-driven repayment, PSLF eligibility, deferment options, and all federal borrower protections. Even if the new interest rate is lower, the protection you give up often outweighs the savings — especially if there is any chance you might need IDR or pursue PSLF in the future.
The exception: very high income, no interest in PSLF, and the discipline to pay aggressively. In that narrow case, refinancing private loans (not federal) at a lower rate can save money. Refinancing federal loans is almost never worth it.
Direct PLUS Loans for parents allow parents to borrow up to the full cost of attendance minus other aid — at a higher interest rate (8.94% in 2025–26) and with a credit check. Parent PLUS loans are federal loans, so they carry federal protections, but they are in the parent's name — not the student's. Parents are responsible for repayment, though some families create informal arrangements for the student to pay. Students should be aware of any PLUS loan burden their family is taking on, as it affects the family's overall financial flexibility.
Graduate students can also take out Grad PLUS Loans at the same 8.94% rate, which fill the gap beyond the $20,500 Unsubsidized limit for graduate students. Grad PLUS loans are in the student's name and carry the same federal protections as other Direct Loans.
If you have both federal and private loans, prioritize paying off private loans first — specifically the highest-rate private loans. Private loans have fewer protections, no IDR options, and no forgiveness paths. Federal loans, especially those with rates in the 6–7% range, often make sense to service on a longer timeline if you have IDR available or are pursuing PSLF.
Exception: if you are pursuing PSLF, pay the minimum on all federal loans (to maximize forgiveness) and direct any extra payments toward private loans. Paying down federal loan principal faster reduces the amount that gets forgiven — which is counterproductive if PSLF is your plan.
Student Loan Calculator — see total interest cost for any loan.
Loan Repayment Calculator — compare repayment plans.
Student Loan Repayment Plans (2026) — Standard, IBR, and the new RAP plan explained.