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 (2026–27) | 6.52%–9.07% fixed | About 2%–17.5% |
| Credit check required | No (except PLUS) | Yes |
| Income-driven repayment | Yes | Rarely |
| Loan forgiveness eligible | Yes (PSLF, IDR) | No |
| Deferment / forbearance | Broad (narrower from July 2027) | 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. (Some are narrowing: for federal loans made on or after July 1, 2027, the unemployment and economic hardship deferments end and forbearance is capped at nine months in any two-year period.) 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 apply to loans first disbursed between July 1, 2026 and June 30, 2027, and are fixed for the life of the loan. Rates are set annually each May based on the 10-year Treasury auction. Private loan rates depend on credit score and term. In mid-October 2026, published fixed rates at major lenders ran from about 2% (with autopay and excellent credit) to about 17.5%, and variable rates from about 3% to 17% — variable rates can rise over time.
Federal loans have annual and lifetime borrowing caps. Dependent undergraduates can borrow $5,500, $6,500 and $7,500 in years one, two and three-plus, up to $31,000 in total; independent undergraduates (and dependents whose parents are denied a PLUS loan) can borrow $9,500 to $12,500 a year, up to $57,500. For graduate students who start borrowing on or after July 1, 2026, the One Big Beautiful Bill Act sets $20,500 a year and $100,000 in total for graduate programs, and $50,000 a year and $200,000 in total for professional programs such as medicine and law, with a $257,500 lifetime cap across all federal student loans. Grad PLUS is no longer available to new borrowers.
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.
Parent PLUS Loans are federal loans in the parent's name, with a credit check and a higher rate (9.07% for 2026–27). For parents whose first Parent PLUS disbursement is on or after July 1, 2026, borrowing is now capped at $20,000 a year and $65,000 in total per dependent student; families already borrowing for a student in the same program before that date can keep the old cost-of-attendance limit for up to three more academic years. Parent PLUS carries federal protections, but parents are legally responsible for repayment even if the student agrees informally to pay, and new Parent PLUS loans can only use the Tiered Standard Plan, not an income-driven plan.
Graduate students could previously take out Grad PLUS Loans at the same PLUS rate to fill the gap beyond the $20,500 Unsubsidized limit. That ended for new borrowers on July 1, 2026. A student who received a federal graduate loan for a term before that date and stays continuously enrolled at least half-time in the same program at the same school can keep the old rules, including Grad PLUS, for up to three academic years or until the program ends, whichever comes first. Taking a leave, dropping below half-time or switching programs ends that protection, which is when private loans become the main gap-filler.
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.
Can I have both federal and private loans at the same time? Yes, and it's common — most students exhaust federal aid first, then use private loans to cover any remaining gap in cost of attendance. Just keep the private portion as small as possible.
Do private loans ever offer better rates than federal loans? Sometimes. Lenders advertise fixed rates starting around 2%, so a borrower or cosigner with excellent credit can beat the 9.07% PLUS rate and occasionally even the 6.52% undergraduate rate. Most applicants are offered rates well above the advertised minimum, and even a lower rate means giving up income-driven repayment, PSLF and federal deferment.
What happens to private loans if I can't pay? Private lenders have far less flexibility than the federal government — options are typically limited to forbearance (often short-term and interest-accruing) or default, which can trigger collections and significant credit damage. This is the core risk that makes federal loans the safer first choice.
Does refinancing private loans have the same downsides as refinancing federal loans? No — refinancing a private loan into a new private loan doesn't cost you any federal protections, since you never had them. If you can qualify for a meaningfully lower rate, refinancing private-to-private is usually a straightforward win.
Student Loan Calculator — see total interest cost for any loan.
Loan Repayment Calculator — compare repayment plans.
Grad PLUS vs. Private Loans for Grad School — what changed for graduate borrowers in 2026.
Student Loan Repayment Plans (2026) — Standard, IBR, and the new RAP plan explained.