When you borrowed money to pay for college, you may not have paid much attention to the difference between federal and private student loans. You might not know who your student loan servicer is, or if you do, you may wonder for example whether that loan listed under Nelnet is federal or private.
In fact, it’s completely reasonable to ask why the difference between private and federal student loans matters in the first place.
There are a few ways to see if your student loans are private or federal — here’s how, along with what makes each different, and why knowing which type of loan you have is important.
What makes federal and private student loans different?
Federal student loans are offered through the Department of Education. Typically, these loans are easy to qualify for. For many federal student loans, your credit isn’t even checked.
There are four different federal student loan programs currently available:
- Direct subsidized loans: These loans are awarded based on your financial need. When you apply for federal financial aid, your eligibility for subsidized loans is also considered. “Subsidized” here means that interest isn’t charged until after you graduate or drop below half time.
- Directed unsubsidized loans: Anyone can receive an unsubsidized loan — they aren’t based on need. However, unsubsidized loans will put you on the hook for interest charges that accrue while you’re in school.
- Direct PLUS loans: These loans are specifically for graduate students or for parents of undergraduate students taking out loans on behalf of their child. These loans aren’t based on financial need, and a credit check is required.
- Direct consolidation loans: This type of loan allows you to combine all your federal student loans into one, giving you one manageable payment each month rather than many. Your new interest rate is the weighted average of all your loans, rounded up to the nearest one-eighth of a percent.
Private student loans, on the other hand, are offered by private lenders and have different repayment requirements compared with federal student loans. For example, private student loans can offer fixed or variable interest rates, while federal student loans only offer fixed rates.
Because the features of private loans vary from lender to lender, eligibility will depend on the bank, credit union or online financial institution that you borrow from.
Most borrowers usually favor federal student loans, given the flexible repayment options and debt-forgiveness programs they come with. But since federal loans also have borrowing limits, students may need to turn to private loans to help fund any remaining costs, and in a few cases, a private loan might have a better interest rate than their federal equivalent.
How to determine if your loans are federal
The first thing you should do to see if you have federal loans is log on to the National Student Loan Data System. The only loans listed here are federal.
If you’ve never used the NSLDS before, you’ll want to click the “Financial Aid Review” button on the homepage, hit “Accept,” and then enter your credentials.
If you have a Federal Student Aid (FSA) ID, you can enter it here. If not, there’s an option to create one. In May 2015, the government redesigned its student loan system, and you can now use your FSA ID to log on to multiple government sites. But if you haven’t visited in a while, you might need to create one.
In the event you forgot your credentials, you can click the “Forgot my username/password” button and have the information emailed to you or answer a challenge question. You’ll just be required to enter your Social Security number, last name and date of birth.
Once you log on, you’ll see a list of all the student loans that were disbursed to you. This page will also show you what your original loan amount was, and how much you currently owe.
Click on the numbered box to the left of your loan to determine your loan servicer. This will display all the information about that particular loan. Your loan servicer will be listed under the “Servicer/Lender/Guaranty Agency/ED Servicer Information” section. The name, address, phone number and website should all be displayed.
Additionally, this page will also inform you of your loan terms. Along with your original loan balance and current outstanding balance, it will tell you what the interest rate is and the current status of the loan.
How to determine if your student loan is private
As discussed, private student loans are loans not made by the government — banking institutions, such as Sallie Mae, Wells Fargo, Citizens Bank and others offer them. As a result, there are more lenders to look out for when it comes to private loans.
Unfortunately, there’s no central reporting system for private loans like there is for federal loans, which makes them slightly more tricky to track down.
Your first stop should still be the NSLDS to at least see if you have any federal loans. In 2015, just 5% of undergraduate borrowers had private student loans, so your student loans are more likely to be federal than private.
But in order to make sure you have no outstanding private student debt, you’ll want to take a look at your credit report. You can view your reports from the three main credit bureaus for free by visiting AnnualCreditReport.com.
Some lenders may not look familiar to you. Searching the lender’s name online may help you find out who the parent company is. Don’t hesitate to call the numbers available on your credit report if you’re still unsure.
If you graduated a while ago, some older loans may look unfamiliar. You might see “federal direct loan,” “federal Perkins,” or “Stafford” on your report — these are federal loans, so ensure they match up with what’s in your NSLDS file.
You might also be able to call your school’s financial aid office to see if they have records of your loans.
What should you do once you find out?
Knowing whether your student loans are private or federal can be important as you repay you college debt.
For example, knowing the difference is crucial if you ever decide to refinance or consolidate your student loans. You can only combine your debt under a direct consolidation loan if you have federal loans. Likewise, refinancing through a private lender will cause you to lose access to federal repayment and forgiveness programs, while private loans would be unaffected.
So, by knowing which type of student loans you have, you’ll get a better idea of what options you have to knock them off.
Dori Zinn contributed to this report.