When getting loans for college, you can go two directions: federal student loans or private student loans. Some argue that one is always a better option than the other. But the truth is, they are both just options. There is no perfect solution for everyone when it comes to selecting which loans to get to help you through college. Sometimes students need both to cover all the costs associated with college life, including tuition, textbooks, housing and other living expenses, and other fees.

Federal Student Loans

Federal student loans come from the federal government. Anyone can apply for federal student loans by filling out the Free Application for Federal Student Aid (FAFSA). This application needs to be filled out for every year you are in college. Besides generally lower interest rates, federal student loans have two major built-in protections for borrowers that can save them from slipping into default:

  • Federal student loan borrowers are entitled to three years of forbearance time. During forbearance, borrowers do not need to make payments, but interest still accrues.
  • Federal student loan borrowers have access to income-driven repayment plans for student loan borrowers who need a lower monthly payment. Those that qualify will typically be under financial strain and not able to maintain the high monthly payments that come with the standard repayment plan.

Federal student loan borrowers who need to lower payments often choose to consolidate their loans first. Paired with income-driven repayment plans, this is an effective way to manage student loan payments.

Private Student Loans

Private student loans are issued by financial institutions; accordingly, benefits will vary from lender to lender. Some may offer forbearance, but it is not required. Private lenders lack some of the protections that are inherent in federal student loans and often have higher interest rates. However, some private lenders will offer solutions for borrowers going through financial hardship.

Private loan lenders don’t offer the option to consolidate loans; however, you can refinance. This may or may not be a good option; depending on the new interest rate and term of the new loan, you may end up paying more in the long run.

Tips for Lowering Payments

If you have both federal and private student loans, you can refinance them all so you have a single monthly payment, though there are some drawbacks. Refinancing federal loans turns them into private loans, so you will lose out on the protections from your federal student loans, such as the option to enroll in an income-driven repayment plan.

If you’re okay with having two payments, it might be worth it to refinance your private loans and then consolidate your federal loans, or even enter into an income-driven repayment plan. You would still have two payments, but it ensures your federal student loans retain protection.