Federal vs. Private Student Loans: Knowing the Difference

Pursuing higher education is an enriching experience, but it comes with overwhelming financial burden for many of us. Attorneys at Pepper & Nason are here to help.

The U.S. Department of Education offers federal direct loans, which are serviced by various providers. Meanwhile, there are also private student loans that come with their own set of rules and risks. It’s important to know the differences between these loans.

Federal loans come in two types: subsidized and unsubsidized. With subsidized loans, the government pays the interest on them while you’re in school, deferment, or forbearance. Unsubsidized loans can accumulate interest at a higher rate, which can make a $20,000 loan balloon into $30,000 or more by the time you graduate. Federal loan service providers include companies like MOHELA, Great Lakes Educational Loan Services, Nelnet, and Edfinancial.

Private student loans are serviced by companies like Sallie Mae, Discover, Wells Fargo, and Citibank. The interest rates of private loans tend to be higher than those of federal loans, and their terms may be less favorable. Private loans sometimes place more significant financial pressure and add to your debt for years to come.

Finally, there are FFEL loans or Federal Family Education Loans, which were discontinued in 2010. This program includes Stafford loans, FFEL PLUS loans, and some consolidated loans. These loans were issued by the government but were serviced by private companies. If you have an FFEL loan, it may be serviced by Navient, SunTrust, ECMC Group, or other private loan providers.

Navigating student loans can dominate the post-graduate experience. Your education was a solid investment, but repaying loans can be a burden.

There are opportunities available to you that have opened up since 2020, and attorneys at Pepper & Nason are committed to making sure you understand your options. Reach out to us today by downloading a student loan questionnaire or calling us at 304-346-0361.