🎯 In 30 seconds: With new caps on Parent PLUS and graduate loans, more families will look at private loans. They can fill a gap, but they carry fewer protections, and refinancing a federal loan into a private one can’t be undone. Use every federal dollar first, compare at least three written offers, and know exactly what you give up.
Federal and private loans side by side
| Feature | Federal Direct Loans | Private loans |
|---|---|---|
| Credit check | None for undergraduate student loans; PLUS loans check for adverse credit | Yes. Many students need a cosigner. |
| Interest rate | Fixed for the life of the loan, set each year for new loans | Fixed or variable, priced on credit |
| Income-based payment | RAP, plus IBR for older loans | Rare, and up to the lender |
| Forgiveness | PSLF, RAP forgiveness after 30 years, Teacher Loan Forgiveness | Generally none |
| Pausing payments | Deferment and forbearance set by law (narrower for loans from July 2027) | Whatever the lender offers |
| If the student dies | Federal loans are discharged | Depends on the contract, but for loans signed from November 20, 2018 the cosigner must be released |
If you need one: the order of steps
- Use federal money first. Take the student’s own Direct Loans before anything private. Ask the aid office about an appeal, more grant aid or a tuition payment plan that spreads the bill over months.
- Read the self-certification form. Federal rules require a lender to get a signed form showing the cost of attendance and the aid you already have before making a loan for college. Use it to borrow only the true gap.
- Get at least three written offers. Compare the APR, whether the rate is fixed or variable, fees, the repayment term, cosigner release terms, hardship options and what happens on death or disability.
- Use your time. After approval you have at least 30 days to accept. After the final disclosure you can cancel without penalty until midnight of the third business day, and no money is sent until then.
- Borrow one year at a time, not the whole degree up front.
For cosigners
- A cosigner owes the whole debt if the student doesn’t pay, and the loan affects the cosigner’s credit and ability to borrow.
- Ask how cosigner release works: how many on-time payments and what credit test the student must pass. Get it in writing.
- For private student loans signed from November 20, 2018, federal law bars the lender from declaring the student in default just because a cosigner died or filed for bankruptcy. It must release the cosigner when the student dies, and it must let the student name someone to handle the loan if they die.
- Parents weighing a cosign against their own retirement can use the goals planner to see the trade-off.
Refinancing federal loans: the math and the trade
Worked example. Chris owes $60,000 in federal loans at 7% on a 10-year schedule: about $696.65 a month. A private lender offers 5.5% for 10 years: about $651.16 a month. That saves about $45 a month, roughly $5,460 over ten years. Both rates are made up for the example; real offers depend on credit and the market.
Here is what Chris gives up for that $5,460:
- If he lost his job, RAP could drop his federal payment to $10 a month. A private lender has no such rule.
- If he took a job at a nonprofit or in government, PSLF could forgive tens of thousands after ten years.
- Federal discharge if he dies or becomes totally and permanently disabled.
- Waived interest and the $50 principal match on RAP.
Once federal loans are refinanced, they are private loans for good. There is no way back.
When refinancing more often makes sense
- Stable, high income and an emergency fund of several months
- No plans for public service work or income-based payments
- A large rate gap after fees
- Refinancing private loans you already have, which costs no federal protections
- Refinancing only your highest-rate federal loans and keeping the rest
Traps
Variable rates that start low and rise. Lenders marketing “up to the full cost of attendance” when you need less. Companies charging fees to “consolidate” or “forgive” federal loans, which StudentAid.gov does free. See the scams list on Paying for College.
Check yourself
- How long do you have to cancel a private student loan after the final disclosure? Answer: Until midnight of the third business day.
- Can refinanced federal loans go back to being federal? Answer: No.
- What must a lender do for a cosigner if the student dies (loans signed from November 20, 2018)? Answer: Release the cosigner.
- What should come before any private loan? Answer: The student’s own federal Direct Loans, grants, appeals and payment plans.