Federal Student Loans\r\nA federal student is funded by the federal government to help pay for your education. A federal student loan is borrowed funds you must repay with interest.\r\nPrivate Student Loans\r\nA private student loan is a credit from a private lender such as a bank, credit union or other financing company. Private student loans can fill the gaps when federal financial aid isn\u2019t enough.\r\nFederal Versus Private Student Loans\r\nIf you must take out student loans, federal student loans are the best option for the vast majority of borrowers. It is best to max out your federal student loan options before you borrow any private student loans.\r\n\r\nFederal student loans have strict limits with dependent undergrads borrowing up to $31,000 and independent undergrads borrowing up to $57.500 with graduate student borrowing limits up to $138,500. A credit report is not required to receive federal student loans. On the other hand, private student loan limits are set by the bank, credit union or financing company. Private lenders may cap the amount of the loan based on the total cost of attendance minus any financial aid received.\r\n\r\nFederal student loans usually carry more flexible protection if you run into difficulty in repaying your loans, and all new federal student loans have fixed interest rates, meaning the rate does not change over the life of your loan.\u00a0Private student loans generally have variable interest rates, which can reset every month or quarter, causing your monthly payments to change.\r\n\r\nHowever, there are rare cases where a private loan could be a viable alternative to a Federal loan. This may occur if you:\r\n\r\n \tAre a graduate or professional school student with a high certainty of job placement\r\n \tHave a very high credit score\r\n \tCan borrow at interest rates substantially lower than current federal loan rates\r\n \tAre completely committed to finishing the degree program on time\r\n \tHave a specific plan to repay your loans within a few years of graduation (rather than repaying over 10 or more years, increasing the risk\u00a0 of the rate increasing)\r\n \tHave already borrowed as much as you can under the Direct and Perkins Loan programs\r\n\r\nIf you have ALL of the above characteristics, you may want to consider private student loan options instead of Federal student loans.\r\n\r\nA private loan may be better for a student with ALL of these characteristics for a number of reasons: a private loan may have a lower initial interest rate; as a graduate or professional student, you may be more certain of your job prospects and earning potential; and rate changes may have less impact if you expect to quickly repay the loan.\r\n\r\nBoth federal and private student loans cannot be dismissed in bankruptcy unless you can prove extreme hardship.\r\n\r\nAll federal student loan interest paid and most private student loan interest paid may have tax benefits.\r\n\r\nEvery student\u2019s situation is different. Consult with your school\u2019s financial aid office for additional information and shop around with private student lenders to compare.