Federal vs Private Student Loans: 2026-27 Rules

Federal student loans first disbursed from July 1, 2026 to June 30, 2027 carry a fixed 6.52% rate for undergraduates, with no credit check. They also come with income-based payments and forgiveness paths that private loans do not offer.

Private loans make sense only for the gap left after grants and federal loans. They are priced on your credit (or a cosigner’s), and they give up the federal safety net for good.

Federal loans win on every protection that matters

Federal loan terms are set by law and are the same for every borrower. Private loan terms are set by each lender, based on your credit.

Recommended

Federal Direct Loans

Subsidized, Unsubsidized, PLUS

Interest rate

Fixed: 6.52% undergrad, 8.07% grad, 9.07% PLUS

Credit check

None, except PLUS loans (adverse credit only)

Payments tied to income

Yes: RAP, and IBR for older loans

Forgiveness

PSLF after 120 payments; income-driven discharge after 20 to 30 years

Payments during school

Not due while enrolled at least half time

Hardship pause

Deferment and forbearance set by federal rules

Private student loans

Banks, credit unions, state agencies, schools

Interest rate

Fixed or variable; set by the lender from your credit

Credit check

Yes; often needs a credit record or a cosigner

Payments tied to income

No federal income-driven plans

Forgiveness

Generally none; some state-agency loans have limited programs

Payments during school

Many lenders require payments while you study

Hardship pause

Whatever the lender offers, if anything

Federal Student Aid’s own comparison says private loans are “generally more expensive than federal student loans.” Private loans also cannot be folded into a federal Direct Consolidation Loan.

Federal rates for 2026-27 are fixed at 6.52%, 8.07% and 9.07%

Each July 1 a new rate applies to new federal loans. Once your loan disburses, its rate never changes.

Loan	Borrower	Fixed rate	Loan fee
Direct Subsidized and Unsubsidized	Undergraduate	6.52%	1.057%
Direct Unsubsidized	Graduate or professional	8.07%	1.057%
Direct PLUS	Parents (and grad students under the interim exception)	9.07%	4.228%

Loan Direct Subsidized and Unsubsidized

Borrower Undergraduate

Fixed rate 6.52%

Loan fee 1.057%

Loan Direct Unsubsidized

Borrower Graduate or professional

Fixed rate 8.07%

Loan fee 1.057%

Loan Direct PLUS

Borrower Parents (and grad students under the interim exception)

Fixed rate 9.07%

Loan fee 4.228%

The fee comes out of each disbursement, so you receive less than you borrow. On a $20,000 Parent PLUS loan, the 4.228% fee is $846.

On a Subsidized Loan, the government pays the interest while you are enrolled at least half time. On an Unsubsidized Loan, interest starts adding up the day the money is paid out.

Undergraduates can borrow $5,500 to $12,500 a year in federal loans

The One Big Beautiful Bill Act (Public Law 119-21) left undergraduate limits unchanged. Your limit depends on your year in school and whether the FAFSA counts you as dependent or independent.

Year in school	Dependent	Independent	Most that can be subsidized
First year	$5,500	$9,500	$3,500
Second year	$6,500	$10,500	$4,500
Third year and beyond	$7,500	$12,500	$5,500
Undergraduate total (aggregate)	$31,000	$57,500	$23,000

Year in school First year

Dependent $5,500

Independent $9,500

Most that can be subsidized $3,500

Year in school Second year

Dependent $6,500

Independent $10,500

Most that can be subsidized $4,500

Year in school Third year and beyond

Dependent $7,500

Independent $12,500

Most that can be subsidized $5,500

Year in school Undergraduate total (aggregate)

Dependent $31,000

Independent $57,500

Most that can be subsidized $23,000

Dependent students get the higher independent limits if a parent is denied a Parent PLUS loan for adverse credit. If you enroll less than full time, your annual limit is reduced in proportion to your enrollment.

Grad PLUS is closed and graduate limits are new

For anyone outside the interim exception, federal graduate borrowing changed on July 1, 2026.

Borrower	Annual limit	Aggregate limit
Graduate student (Direct Unsubsidized)	$20,500	$100,000
Professional student (Direct Unsubsidized)	$50,000	$200,000, minus graduate borrowing
Grad PLUS	No longer available	Not applicable
Parent PLUS, per student	$20,000	$65,000
Any student, lifetime (all Direct Loans)	Not applicable	$257,500

Borrower Graduate student (Direct Unsubsidized)

Annual limit $20,500

Aggregate limit $100,000

Borrower Professional student (Direct Unsubsidized)

Annual limit $50,000

Aggregate limit $200,000, minus graduate borrowing

Borrower Grad PLUS

Annual limit No longer available

Aggregate limit Not applicable

Borrower Parent PLUS, per student

Annual limit $20,000

Aggregate limit $65,000

Borrower Any student, lifetime (all Direct Loans)

Annual limit Not applicable

Aggregate limit $257,500

The interim exception keeps the old limits for a student who was enrolled on June 30, 2026, already had a Direct Loan for that program, and stays in the same program at the same school. It lasts three academic years at most. Ask your financial aid office whether you qualify.

A graduate program that costs more than $20,500 a year now leaves a gap that savings, employer aid, school aid or a private loan has to fill.

Private loans fill the gap on the lender’s terms

A private loan is a contract with a bank, credit union, state agency or school. Federal Student Aid lists what changes when you sign one:

• Rate. Fixed or variable, and it “may be higher or lower” than federal rates depending on your credit.
• Approval. Private loans “often require an established credit record or a cosigner.”
• Payments. Many require payments while you are still in school.
• Relief. Postponing or lowering payments depends on the lender.
• Fees. Check for prepayment penalties. Federal loans have none.

A cosigner is equally responsible for the debt. A missed payment lands on both credit records.

Repayment is where the two systems split

Private lenders set one schedule. Federal loans let you change plans as your income changes, and which plans you get depends on when your loans were first disbursed.

If any of your loans, including a new consolidation loan, was first disbursed on or after July 1, 2026, you can repay only under two plans:

• Repayment Assistance Plan (RAP). You pay 1% to 10% of adjusted gross income a year, divided by 12, minus $50 a month per dependent. The floor is $10 a month. Any balance left after 360 qualifying payments (30 years) is discharged.
• Tiered Standard Plan. Fixed payments of at least $50 a month, over 10 to 25 years depending on your balance. These payments do not count toward PSLF.

Principal when you enter the plan	Maximum term
Under $25,000	10 years
$25,000 to under $50,000	15 years
$50,000 to under $100,000	20 years
$100,000 or more	25 years

Principal when you enter the plan Under $25,000

Maximum term 10 years

Principal when you enter the plan $25,000 to under $50,000

Maximum term 15 years

Principal when you enter the plan $50,000 to under $100,000

Maximum term 20 years

Principal when you enter the plan $100,000 or more

Maximum term 25 years

If all your loans were disbursed before July 1, 2026, you keep the older menu: Standard, Graduated, Extended, IBR and RAP. PAYE and ICR also stay open until they end, no later than July 1, 2028.

Only federal loans can be forgiven

These programs exist only for federal loans. A private loan, or a federal loan refinanced into one, can never use them.

• Public Service Loan Forgiveness. Forgives the rest of your Direct Loans after 120 qualifying payments while you work full time for government or a qualifying nonprofit. Payments under RAP count; Tiered Standard payments do not.
• Income-driven discharge. The remaining balance is discharged after 20 or 25 years on IBR, PAYE or ICR, or 30 years on RAP.
• Teacher Loan Forgiveness. Up to $17,500 for secondary math and science or special education teachers, and up to $5,000 for other subjects, after five consecutive years at a low-income school.

PSLF is not taxed. Other discharges can be: the federal tax exclusion covered discharges through December 31, 2025, plus later discharges for borrowers who met their income-driven milestone before January 1, 2026. Our loan forgiveness guide covers each program.

Hardship options shrink for loans made from July 1, 2027

Federal loans still let you pause payments in a crisis, but the law narrowed that for new loans.

For loans made before July 1, 2027, the unemployment deferment still runs up to three years. General forbearance still runs up to 12 months at a time, with a three-year total.

Refinancing federal loans into a private loan cannot be undone

A private refinance pays off your federal loans with a new private loan. You lose income-driven repayment, PSLF, federal deferment and forbearance, and the federal discharge programs, permanently.

It only pays if you are sure you will never need those protections and the new rate is lower after fees. A lower rate does not bring any of them back.

Borrow in this order

1. File the FAFSA

   The 2027-28 FAFSA opened September 23, 2026 and covers July 1, 2027 to June 30, 2028. It is the only application for federal loans, and schools use it for their own aid.

2. Take grants and scholarships first

   Pell, state grants and campus aid never need repaying. Count them before you borrow a dollar.

3. Accept Subsidized Loans next

   The government pays the interest while you are enrolled at least half time. No private loan does that.

4. Then Unsubsidized Loans

   Interest starts at disbursement, but the rate is fixed at 6.52% for 2026-27 undergrad loans and every federal protection comes with it.

5. Compare private loans only for what is left

   Get quotes from several lenders. Compare the APR, fees, fixed or variable rate, cosigner release terms and hardship options, not just the headline rate.

Example: a dependent first-year student at a school with $15,000 left after grants can borrow $5,500 in federal loans. That leaves $9,500 for savings, a payment plan, a Parent PLUS loan or a private loan.

Frequently asked questions

Are private student loans ever cheaper than federal loans?

Sometimes, for a borrower or cosigner with strong credit. Federal Student Aid notes private rates may be higher or lower depending on your circumstances. A lower rate still gives up income-driven repayment, forgiveness and federal hardship options.

Do federal student loans need a credit check?

Direct Subsidized and Unsubsidized Loans do not. PLUS loans check only for adverse credit history, and a parent who is denied can make the student eligible for the higher independent limits.

Can a graduate student still get a Grad PLUS loan?

Only under the interim exception: enrolled June 30, 2026, already borrowing for that program, and staying in it at the same school. Everyone else is limited to $20,500 a year in Direct Unsubsidized Loans, or $50,000 for professional programs.

Your next step

Find your real gap before you talk to a private lender. The aid check shows your Pell estimate, state and campus grants and your 2026-27 federal loan limits in one result, in about two minutes. Then price any loan you still need in the loan repayment calculator.