Student loans tend to get a bad rep; somewhat undeservedly so. If you take away the whole “paying it back” part, they are actually quite helpful. In all seriousness, student loans do serve an important purpose. Knowing how to choose which ones work best for you can really save you some money in the long run. That’s why we’d like to let you know the difference between federal and private student loans.

Federal Student Loans

Federal student loans (as the name would suggest) are provided by the government for the sole purpose of paying for college and are historically laxer when it comes to repayment. Actually, there are policies designed to allow for total forgiveness if the right conditions are met. Moreover, federal student loans will almost universally have lower interest rates.

Within federal student loans, there are two types.

Subsidized federal loans: Students don’t have to pay the interest on these for the time they are in school.

Unsubsidized federal loans: The interest rate remains constant throughout the lifetime of these loans regardless of the circumstances.

The major downside of federal loans is eligibility. You’re only going to qualify for a certain amount of aid. If it’s not enough, you’ll have to make up the difference yourself.

This is an especially big problem for students trying to put themselves through school with little to no help from their parents. The determining factor of how much federal aid you get comes down to income and assets of the household. The less you have, the more you’ll get and vice-versa. If parents withhold money for college as a way of teaching their kids responsibility, it can handicap them in a way they might not have realized.

Private Student Loans

Technically, private student loans (or more accurately, just loans) can come from anywhere that’s not the government (though it’s usually a bank) and can be used for whatever.

Anyone can theoretically get a private loan and the loan amount is ultimately between the lender and the borrower. Lenders can effectively set whatever repayment stipulations they want (within legal reason). That means they can set the how much the interest rate is and what kind it will be. For example, if they choose a variable interest rate, it may start out super low. However, since it’s variable it could change and become much higher.

Realistically, most students aren’t going to have a credit history to speak of, making the need for a co-signer a near foregone conclusion.

Private vs Federal Student Loans

Let’s not beat around the bush. The only thing private loans have on federal loans is availability. Federal loans have better interest rates, better repayment policies, and you don’t need a co-signer to get them. On the other hand, none of that is of much use if you can’t actually get it. Federal loans are unquestionably the better option. Unfortunately, private loans are sometimes the only option. It’s also important to note that federal loan policies are subject to the whims of politicians. How things are today might not be how they are this time next year.

Loans are still loans

Either way, you’re eventually going to have to pay back that money. That doesn’t change, regardless of which type you take out (unless you meet the right conditions on the federal side, but that takes like 20 years).

Student loan repayment is no joke. It has gotten to a point where entire generations of people (statistically speaking) are putting off major life events like home ownership until later in life. What’s worse, graduates are taking longer to start saving for retirement, opting to get out of debt first. It’s not something you can blame them for, but it is an unfortunate reality, that can lead to a more uncertain future.

It’s gotten to the point where, once faced with reality of debt repayment, many graduates find themselves rethinking their decision to go to college in the first place. Debt is no joke; make sure you’re certain that college is the path for you before you take it on.