Student loans: the federal-first rule, in plain numbers
Federal undergraduate loans are fixed at 6.53% — set by Congress, not your credit, and identical at every school. That single fact drives almost every smart borrowing decision here, because the protections attached to federal loans are worth more than a lower private rate.
| Loan type | Fixed rate | Source |
|---|---|---|
| Federal Direct Subsidized/Unsubsidized (undergrad) | 6.53% | Federal |
| Federal Direct Unsubsidized (graduate) | 8.08% | Federal |
| Federal Direct PLUS (grad/parent) | 9.08% | Federal |
| Private, fixed (excellent credit) | 4.99% | Private |
| Private, fixed (fair credit) | 14.22% | Private |
Source: Federal rates set by Congress for the 2025–26 award year; private ranges from major lenders, July 2026. Private rates depend on your (or a cosigner's) credit.
A private lender competes on rate, so a strong credit profile can beat the federal number — on paper. What that comparison leaves out is everything a federal loan carries that a private one does not: income-driven repayment that caps your bill at a share of discretionary income, forgiveness after a set period, deferment when you lose a job, and discharge if the worst happens.
Those protections are the product. A private loan at 4.99% looks cheaper than federal at 6.53% until the month you need to pause payments and discover you cannot. That is why the order matters: exhaust subsidized Need-based federal loans where the government covers interest while you are in school. federal loans first, then unsubsidized Federal loans where interest accrues from disbursement and capitalizes at repayment. , and only then consider private money to close a remaining gap.
The one place private wins cleanly is refinancing for a high earner who will never use federal protections — but refinancing a federal loan converts it to private permanently, trading away every safety net for a rate cut. For most borrowers that trade is a mistake.
Federal or private first?
Federal loans give you
- Income-driven repayment tied to what you earn
- PSLF and 20–25 year forgiveness pathways
- Deferment and forbearance when income stops
- A rate set by law, identical regardless of credit
Private loans only make sense when
- You have hit federal borrowing limits and still have a gap
- You (or a cosigner) have excellent credit for a lower rate
- You are refinancing as a high earner who won't use protections
- You fully accept losing every federal safety net
What students and parents ask
Should I take federal or private student loans first?
Federal, almost always, and to the limit — even at a higher headline rate. Federal loans carry income-driven repayment, forgiveness pathways, deferment, and discharge on death or disability that no private lender matches. Reach for private loans only to fill a gap federal aid leaves.
What is the difference between subsidized and unsubsidized?
On a subsidized loan the government pays the interest while you are in school; on an unsubsidized loan interest accrues from day one and capitalizes onto the balance when you enter repayment. Subsidized loans are need-based and cheaper — borrow those first.
Is refinancing my student loans a good idea?
Refinancing federal loans into a private loan can lower the rate, but it permanently surrenders income-driven repayment and every forgiveness option. It only makes sense for high earners with stable income and no plan to use those protections — and never for federal loans you might want forgiven.
Who qualifies for loan forgiveness?
Public Service Loan Forgiveness wipes the balance after 120 qualifying payments while working for a government or nonprofit employer. Income-driven plans forgive the remainder after 20–25 years. Both apply only to federal loans, which is the core reason to keep them federal.