Federal Student Loans are education loans made directly by the Department of Education of the U.S. Federal Government. (In fact, they’re officially called “Federal Direct Student Loans”). Federal Student Loans are very widely available, with few eligibility requirements. A co-signer is not required (or possible) for a Federal Student Loan. These loans also have competitive fixed interest rates and very flexible deferment and repayment provisions. The amount that undergraduate students can borrow is limited to a set amount based on year in school.

Private Student Loans are loans made by private lenders. Private Student Loans have relatively stringent credit and income requirements. A co-signer with strong credit is usually required to qualify. Most Private Student Loan lenders offer fixed rate and variable rate versions. Interest rates vary, depending on the credit and income profiles of the borrower and co-signer.

It almost always makes sense to borrow through the Federal Student Loan program first before turning to Private Student Loans. The reason is that Federal Student Loans have competitive interest rates, but especially because Federal Student Loans have extremely flexible deferment and repayment provisions. Private Student Loans might be a good option if a student needs to borrow more than is available through the Federal Student Loan program.

As little as you possibly can. Students should always – always – exhaust every resource for paying college costs before turning to student loans. But if, as is often the case, you need to borrow for college, keep track of what your total loan principal and the future monthly payment will be. This can be confusing because many students borrow through multiple loan programs over multiple years. However, it is very important to end up with a total borrowed amount that is manageable, especially during the first several years out of college, when a graduate’s income will be low. Some experts suggest keeping total student loan payments within 10-12% of gross monthly income. Of course, it’s impossible to fully predict what the future graduate’s income will be, but it is worth consulting with the financial aid office and career services office at your school to come up with an estimate.

Almost definitely, yes. Private Student Loans are made based on credit and income analysis of the borrower(s). If a student borrower has no credit history and no sizable income – which is usually the case – the student will not be approved for the loan. Overall, Private Student Loans have roughly a 95% co-signer rate.

Most Private Student Loans have similarities to each other: things like choice of fixed or variable rate, option to defer some or all of the payments while enrolled in school, and repayment lengths. 

The main differences to look out for in making your choice are:

• Cost of Borrowing – The most important thing to shop for is a low (if not “lowest”) cost of borrowing. You usually have to apply for the loan – or fill out part of the application – to find out the actual interest rate (and the effective APR) you will receive. Note that most lenders offer a way to get a price quote without incurring a full credit check. This means that checking your rate won’t impact your credit score. Caution though: some lenders don’t enable this. A rate check process with no credit impact (via what’s called a “soft pull” of your credit) usually involves answering 10-12 bits of information on the borrower and co-signer. If you need to complete a full application to find out, check carefully before applying as part of a rate check.
• Borrower Benefits – Most lenders offer rate reductions for setting up auto debit of payments, but some lenders offer interesting benefits that go further, such as a one-time graduation credit, or a credit for getting good grades. Another one to look out for is a “loyalty discount,” offered to borrowers who have other financial accounts with the lender.
• Co-signer Release – some loans offer the feature of “releasing” a co-signer after a certain number of ontime payments (typically two or three years’ worth) AND the borrower passing a credit / income test on their own. Many co-signers appreciate this feature, for obvious reasons.
• Variations on Repayment Length – most lenders have 5, 7, and 10 year repayment lengths as options. A couple allow 15 or 20 years, and some even allow to pick any length (in years) from 5 to 15. That added flexibility can help you select a repayment that solves for a monthly payment that works best for you. (But note that longer repayment terms, while bringing a lower monthly payment, will mean a higher total cost of borrowing because you’re paying interest for a longer period of time.)
• Something Special – once in a while, a lender offers an unusual benefit. Examples include sessions with financial planners, an annual skipped payment, or homework help services.

In addition, you can also research Better Business Bureau reviews of each lender, as well as third party consumer reviews provided via some services like Trust Pilot. 

Yes, it is possible to get a private student loan without a cosigner, but it can be challenging. Most private lenders require a cosigner because students often have limited credit history and income. If you apply without a cosigner, expect to face:

• Higher interest rates
• Stricter credit requirements
• Limited lender options

Some lenders specialize in no-cosigner loans but usually require proof of strong income, excellent credit, or a steady job.

You can pay back your loan early with no penalty.

For private student loans, the grace period (if any) is not automatic—it depends on the lender and the loan agreement. You need to check the promissory note or ask the lender directly. Most will let you choose between different repayment options at the time you take out the loan.

• Sallie Mae → Offers a 6-month grace/separation period for undergraduates.
• College Ave → Undergraduate / career loans: 6 months
• Graduate / MBA / Law / Health Professions: 9 months
• Dental: 12 months
• Medical: up to 36 months

Interest accrues once the money is sent to the school, which happens on the Tuition Due Date, typically around the start of classes. Interest DOES NOT start accruing when you apply for or sign the loan.