Differences between federal and private student loans

Probably the first step in figuring out your options for dealing with student loans is to determine whether your loans are federal loans or private loans. Here are the key features of each:


Federal student loans are made or guaranteed by the Department of Education. The most common federal student loan types are Stafford, Direct Loan, PLUS, and Perkins loans. Borrowers can use the National Student Loan Data System to figure out what type of federal loans they have.

Federal student loans generally have lower interest rates and the law gives borrowers many more options for dealing with them if the payments become too burdensome. However, there are very few defenses available if the government begins legal action after default.

Federal student loans are difficult, though not impossible, to wipe out in bankruptcy.


Private student loans are typically made by banks, credit unions, state agencies, or schools themselves. They may have names like “alternative” or “institutional” loans.

Private student loans typically have higher interest rates than federal loans and the borrower’s credit history will often determine the precise terms. And unlike federal loans, borrowers have very few options if they fall behind on payments. On the bright side, borrowers may have more defenses available if a private student loan lender begins legal proceedings.

Although still challenging to discharge in bankruptcy, private student loans may be a little easier to wipe out than federal loans.