Federal vs private student loans: what actually differs

Side by side

Based on StudentAid.gov’s comparison of federal and private loans. Private loans differ by lender; check the actual terms.

Which to use first

StudentAid.gov’s own advice is: “If you need to borrow money to pay for college or career school, start with federal loans.” StudentAid.gov also notes that if you apply for financial aid, your school will likely include student loans in your aid package.

When federal limits run out

From July 1, 2026, federal borrowing is capped more tightly: graduate students $20,500 a year, professional students $50,000 a year, parents $20,000 a year per student, and Grad PLUS is closed to new borrowers. Above those amounts, federal loans aren’t available. The new limits · The exception for current students

Rules that protect private loan borrowers

Private education loans fall under federal Truth in Lending rules (Regulation Z):

• Self-certification form. Before the loan is made, the lender must get the federal self-certification form, which shows your cost of attendance and the aid you already have.
• 30 days to accept. After you are approved and receive the disclosures, you have 30 calendar days to accept, and the rate and terms generally can’t be changed in that time.
• 3 business days to cancel. After the final disclosure you can cancel without penalty until midnight of the third business day. No money can be paid out before that.
• No implied school endorsement. A lender can’t use a school’s name or logo in a way that suggests the school endorses its loans unless it says clearly that it doesn’t.

Death, disability and bankruptcy

• Federal loans are discharged when the borrower dies, and parent PLUS loans when the student dies. Total and permanent disability discharge is also available (34 CFR 685.213).
• Private loans: for agreements signed on or after Nov. 20, 2018, the holder must release a cosigner after the student borrower’s death. Other terms depend on the lender.
• Taxes: a federal or private education loan discharged because of death or total and permanent disability isn’t taxable income. The 2025 law made this permanent.
• Bankruptcy: both federal loans and qualified private student loans are generally not wiped out in bankruptcy unless repaying would cause “undue hardship”.

Moving between them

Federal loans can be refinanced into a private loan, but a private loan can’t be consolidated into a federal Direct Consolidation Loan. A refinance is one-way: the federal plans, PSLF and federal pause options don’t come back. Refinancing federal loans · Refinance math

Questions people ask

Are private student loans cheaper than federal loans?

Sometimes the rate is lower, sometimes higher; it depends on the lender and your credit. StudentAid.gov says private loans are generally more expensive. A rate comparison leaves out the federal features a private loan doesn’t have.

Can I get a private loan without a cosigner?

Private lenders set their own requirements; StudentAid.gov notes many require an established credit record or a cosigner.

Do private student loans count toward the federal loan limits?

No. The federal annual and lifetime limits in the 2025 law apply to federal loans.

Can I deduct interest on a private student loan?

Yes, if it is a qualified student loan and you meet the IRS rules; the same $2,500 deduction applies to federal and private loans.

What happens to a cosigner if the student dies?

For private education loans signed on or after Nov. 20, 2018, federal law requires the holder to release the cosigner within a reasonable time after being notified of the student’s death.