Two Systems, Very Different Rules
Federal and private student loans both fund education, but they operate under entirely different rules. Understanding the difference matters because it affects your repayment options, protections, and refinancing decisions for years after graduation.
Federal Student Loans
Issued by the federal government. Fixed interest rates set annually by Congress — currently 5.5% for undergrad Direct Loans. Key benefits include income-driven repayment plans, loan forgiveness programs (PSLF, IDR forgiveness), deferment and forbearance options, and no credit check for most borrowers. Repayment typically starts six months after graduation.
Private Student Loans
Issued by banks, credit unions, and online lenders. Rates are variable or fixed, typically ranging from 4% to 14% based on creditworthiness. Private loans have none of the federal safety nets — no income-driven plans, no forgiveness, limited hardship options. They often require a cosigner for students with thin credit histories.
How to Compare Your Loans
The Student Loan Calculator on DebtCalc lets you enter each loan separately — federal and private — and see the total picture: combined monthly payments, interest cost over time, and payoff timelines. This clarity helps you prioritize which loans to attack first. Generally, private loans at high rates deserve the most aggressive repayment. Federal loans with their built-in protections can often stay on standard or income-driven plans while you tackle the expensive debt first. Earnest offers refinancing for both types, but remember: refinancing federal loans into a private loan means permanently losing federal protections.
The Key Decision
Before refinancing federal loans, ask: Am I likely to use income-driven repayment, PSLF, or forbearance in the future? If the answer is maybe, keep them federal. The rate savings from refinancing aren't worth losing safety nets you might need.