Whether you’re an undergraduate or graduate student, or even a parent, when it comes to paying for college, you’ve probably considered getting a loan. If you're thinking about using student loans to help cover any costs that might exceed your budget, then you might be wondering whether you should use a private or federal student loan. 

Federal and private student loans are not the same and it’s important to know the difference. Let’s look at each one in more detail.


Federal Student Loans

Federal student loans are made available and funded directly by the federal government. These loans can be used to cover the cost of tuition and fees, books, housing, food, and transportation. If you meet the basic eligibility requirements, you can apply for federal student loans by completing the Free Application for Federal Student Aid also known as the FAFSA. 

This application helps to determine the types of financial assistance you can potentially qualify for. In addition to federal student loans, you also could be eligible for grants or work-study programs based on information included in your FAFSA.


Private Student Loans

Private student loans are made available to students by non-federal lenders such as credit unions, banks, or the school. These typically require a credit and income review to determine your ability to repay the loan. Similar to federal student loans, private student loans also cover all school-related expenses.

Much like what we offer at University Credit Union, these loans are issued by private lenders who set the terms for their loans. Your loan terms will vary from one lender to another depending on who you choose. 


Understanding the differences in private and federal student loans

When comparing private and federal student loans there isn’t a one-size-fits-all solution. Before deciding how you will finance your education, it is important to consider the differences between these options, along with your overall financial picture. These details can mean paying thousands of dollars more,or less, depending on the type of lender and loan you go with. 

Here, we’ll break down how private and federal student loans differ in terms of eligibility, interest rates, and repayment plans for both types of loans. 



Qualifying for federal student loans has a few basic requirements. You must be a U.S. citizen or eligible non-citizen attending an eligible degree or certificate program. You must be enrolled at least half-time and demonstrate some type of financial need.

Private student loan eligibility works differently. Your creditworthiness will be evaluated much like any traditional loan process. Most lenders will consider your credit score and history, income, and any other forms of debt you have. If you’re an undergraduate student, your parent or family member could be a cosigner to your loan.

At University Credit Union, you must be enrolled in a degree-granting program at an approved school and be a member of the credit union. You may apply without being a member, but you will need to become a member for the loan to be funded. Click here for an extended list of all eligibility requirements.


Interest Rates

Both private and federal student loans offer fixed interest rates. A fixed-rate remains unchanged for the life of the loan. This can be helpful when making financial plans, as your monthly payments will be clear and consistent. Because they are backed by the federal government, these types of student loans usually come with a lower rate.

Unlike federal student loans, private student loans give the option of choosing a variable rate. Variable interest rates can fluctuate, which makes monthly payments harder to predict. However, depending upon your credit history, you might obtain a rate that stays relatively low. 

At University Credit Union, our variable-rate option offers a longer repayment period versus a fixed rate option, which could result in a lower monthly payment.



Every loan comes with terms for how and when you will be required to repay it. This is based on the amount of time you are given to repay your loan. Paying the loan back sooner will result in a lower overall cost but higher monthly payments. 

For federal student loans, the Department of Education (DOE) sets all terms for repayment. If there’s a need, they offer programs that can lower or erase your monthly payments, and/or extend the repayment duration.

Our private loan repayment options at University Credit Union give you the option to choose to make interest-only payments while in school, defer both principal and interest payments until six months after graduation, or make full payments while in school.


Decide what student loan option is right for you

College comes with many projects, exams, and papers to focus on. You shouldn’t have to worry about your finances, too. Now that you know more about private and federal student loans, let University Credit Union help you find the best fit for your needs. 

If you’re an undergrad or graduate student, click below to learn more about your student loan options!