Federal student loan interest rates are extremely low. They are among the lowest interest rates available. Private loans can be as much as three to six times higher depending on your credit rating.
A federal student loan comes with several repayment options. You often can choose to repay within 10, 15 or 20 years. Most federal loans also offer a fixed or graduated repayment plan. In addition, Congress enacted the Income-Based Repayment Option that, in 2009, started setting payments for federal loans based on income. Private student loans, however, typically work like any other private loan, with one choice for a fixed payment for a set number of years.
A private loan's minimum payment is fixed when the loan is approved. A federal or public loan has a fixed payment, but also typically allows the student a $50 minimum payment option if they are unable to make the regular payment.
Private banks have few options to those who are unable to make payments. Banks typically do not grant deferments. Banks will foreclose on the loan if payments have not been made. Federal loans offer deferments to students who cannot make payments due to a temporary hardship. A forbearance is granted to students who have suffered a severe hardship and can no longer repay the loan.
Private loans are granted and interest rates set based on the student's or parents' credit rating and income. Private loans typically require a cosigner, as well. Federal loans are available to any student regardless of income level or credit rating. Students are denied public loans only in unusual cases such as a federal crime or federal tax lien.