Private loans can fill a gap, but they come without most of the protections that make federal loans manageable when life gets hard.
Key numbers
- For 2026–27, new federal undergraduate loans carry a fixed 6.52% rate; graduate unsubsidized loans 8.07%.
- Federal loans offer income-driven repayment, deferment and forgiveness programs that private loans don’t.
- Private loans are based on credit, and most undergraduates need a cosigner.
- Borrow federal first, then consider private loans only for a remaining gap.
Federal student loans come from the U.S. Department of Education; private loans come from banks, credit unions, online lenders and some states. They can look similar on a statement, but they behave very differently when you can’t pay.
Side by side
| Federal Direct Loans | Private student loans | |
|---|---|---|
| Interest rate | Fixed, set by law each year; 6.52% for undergraduates and 8.07% for graduate unsubsidized loans first paid out from July 1, 2026 to June 30, 2027 | Fixed or variable, based on credit |
| Credit check | None for subsidized and unsubsidized loans; PLUS loans check for adverse credit | Yes; most undergraduates need a cosigner |
| Interest while in school | Paid by the government on subsidized loans | Usually accrues |
| Income-based payments | Yes, through the Repayment Assistance Plan for new loans | Rarely |
| Forgiveness | Public Service Loan Forgiveness and forgiveness after long-term income-driven repayment | Rare |
| Deferment and forbearance | Set by federal rules | At the lender’s discretion |
| Death or total disability | Discharged | Varies by lender |
Why federal comes first
The protections matter more than a slightly lower advertised rate. If you lose your job, a federal loan’s payment can fall as low as $10 a month under the Repayment Assistance Plan. A private lender may offer a few months of forbearance, or nothing.
When private loans make sense
- You’ve used all the federal loans available to you, including after the new 2026 limits.
- You or a cosigner have strong credit and can get a rate meaningfully below the federal one.
- You’re confident about steady income after graduation and don’t need federal repayment options.
Watch out
Cosigning a private loan makes you fully responsible for it. If the student misses payments, the lender can come to you, and the debt shows up on your credit report. Ask whether the lender offers cosigner release, and what it requires.
Before you sign a private loan
- Ask your school’s financial aid office whether you’ve received every grant and federal loan you qualify for.
- Compare several lenders’ APRs, not just interest rates.
- Check whether the rate is fixed or variable, and what happens to payments if rates rise.
- Read the hardship, death and disability provisions.
- Borrow only the gap, not the maximum offered.
Questions families ask
Can I refinance federal loans into a private loan?
Yes, but you permanently lose federal benefits such as income-driven repayment and Public Service Loan Forgiveness. Think hard before refinancing federal loans.
What happens to a private loan if the borrower dies?
Federal loans are discharged at death. Private lenders’ policies vary, and some may seek repayment from a cosigner, so read the contract.
Do private loans count toward the new federal limits?
No. The new federal limits apply to federal loans only, which is one reason more graduate students may turn to private lenders.
Award amounts, loan limits and tax rules change, and some 2026 rules are still being finalized. This guide is general information for U.S. students and families, not financial or tax advice; confirm details at StudentAid.gov, with the IRS or with your school’s financial aid office.
