Private vs federal student loans: rates, limits and the 2026 rule changes
Edited by Moe Ameen · Published
Start with federal loans and use private loans to fill a gap. For 2026-27, federal rates are fixed at 6.52% for undergraduates, 8.07% for graduate unsubsidized loans and 9.07% for PLUS loans, and only PLUS loans check your credit. Federal loans come with income-driven repayment and forgiveness options set by law. Since July 1, 2026, new graduate borrowers can't get Grad PLUS, and new caps apply, so more grad students will need private loans.
Key takeaways
- Federal rates for loans first paid out from July 1, 2026 to June 30, 2027: 6.52% undergraduate, 8.07% graduate unsubsidized, 9.07% PLUS. All fixed.
- Grad PLUS is closed to new graduate and professional borrowers. Students covered by the interim exception can use it through the 2028-29 award year at most.
- New caps: $100,000 total for graduate study, $200,000 for professional study, $65,000 per student for parent PLUS, and a $257,500 lifetime limit.
- Private lenders set their own terms. Many want an established credit record or a cosigner, and their relief options are up to them.
Which is better, federal or private student loans?
For most students, federal. Congress fixes the rates, only PLUS loans check credit, and you can tie payments to your income.
Federal Student Aid's own advice is to start with federal loans [2]. Private loans make sense once you've hit a federal limit, or if your credit is strong enough to get a lower rate and you're sure you won't need income-driven repayment or forgiveness. Private rates can be variable or fixed and can land above or below federal rates depending on your circumstances [2].
| If you are... | Usually start with | Why |
|---|---|---|
| An undergraduate | Federal Direct Loans | No credit check, fixed rate, subsidized option if you have financial need [2][5] |
| A new graduate student needing more than $20,500 a year | Federal unsubsidized first, then private | Grad PLUS is closed to new borrowers [4] |
| A parent past $20,000 a year or $65,000 total for one student | Private, or other aid | New parent PLUS caps for borrowers outside the interim exception [3] |
| Someone planning on public service work | Federal | Payments on income-driven plans can count toward PSLF; most private lenders offer no forgiveness [2][6] |
What do federal student loans cost in 2026-27?
Fixed rates of 6.52% for undergraduates, 8.07% for graduate unsubsidized loans and 9.07% for PLUS loans, plus an upfront fee taken from each payout.
| Loan | Who gets it | Fixed rate | Loan fee |
|---|---|---|---|
| Direct Subsidized and Unsubsidized | Undergraduates | 6.52% [1] | 1.057% [1] |
| Direct Unsubsidized | Graduate or professional students | 8.07% [1] | 1.057% [1] |
| Direct PLUS | Parents, and graduate or professional students who still have access | 9.07% [1] | 4.228% [1] |
The fee comes out of the money sent to your school, so you receive less than you borrow and still repay the whole amount [1]. Congress sets these rates, not the Department of Education [1]. On a subsidized loan, the government pays the interest while you're in school at least half-time, for six months after you leave, and during deferment [5]. Subsidized loans are for undergraduates with financial need [5].
How much can you borrow in federal student loans now?
Undergraduate limits didn't change. Graduate students can borrow $20,500 a year and $100,000 in total, professional students $50,000 and $200,000.
| Borrower | Annual limit | Total limit |
|---|---|---|
| Dependent undergraduate | $5,500 / $6,500 / $7,500 by year (no change) | $31,000 (no change) |
| Independent undergraduate | $9,500 / $10,500 / $12,500 by year (no change) | $57,500 (no change) |
| Graduate student | $20,500 unsubsidized; no Grad PLUS | $100,000 |
| Professional student | $50,000 unsubsidized; no Grad PLUS | $200,000, minus anything borrowed as a graduate student |
| Parent PLUS | $20,000 per student | $65,000 per student, all parents combined |
| Lifetime, any student borrower | Not applicable | $257,500, counting paid and forgiven loans |
The lifetime cap counts subsidized, unsubsidized and Grad PLUS loans but not parent PLUS loans [3]. Part-time students get proportionally smaller annual limits, and your school can set a lower cap for your program [3]. Which programs count as professional is in flux: federal courts stayed part of the Department's definition on June 24, 2026 and issued an injunction on October 16, 2026, so check with your school [3].
What changed under the One Big Beautiful Bill Act?
The law, signed July 4, 2025, closed Grad PLUS to new borrowers, capped graduate and parent loans, and added the RAP plan from July 1, 2026.
- July 4, 2025 The One Big Beautiful Bill Act is signed. Some changes take effect right away [3].
- December 22, 2025 Federal Student Aid updates its systems so borrowers no longer need a partial financial hardship to enroll in IBR [4].
- May 1, 2026 The Department of Education publishes its final rule on most of the loan provisions [3].
- July 1, 2026 New loan limits start, Grad PLUS closes to new borrowers, and anyone with a loan first paid out on or after this date repays under RAP or the Tiered Standard Plan only [3][4].
- Through 2028-29 Students in the interim exception keep the old limits and Grad PLUS for up to three academic years, ending no later than the 2028-29 award year. No Grad PLUS loans are made from 2029-30 [4].
- By July 1, 2028 The PAYE and ICR plans end no later than this date [4][6].
The interim exception covers students enrolled in a program on June 30, 2026 who had received a Direct Loan for it before July 1, 2026 and stay in the same program at the same school [3]. Switching programs or credentials can end it, and you can't opt out of it [3].
What do federal loans have that private loans usually don't?
Income-based payments, public service forgiveness and payment pauses written into law. With a private loan, each of those is the lender's call.
The new Repayment Assistance Plan (RAP) bases your payment on income: 1% to 10% of adjusted gross income, divided by 12, minus $50 for each dependent, with a $10 minimum [3]. If your payment doesn't cover the interest, the unpaid interest for that month is covered, and if your principal drops by less than $50, the government makes a matching payment to get it there [3]. Whatever is left can be discharged after 360 eligible monthly payments over at least 30 years, and that discharge may be taxable [3]. RAP payments made on time and in full generally count toward Public Service Loan Forgiveness; Tiered Standard payments don't [3].
Federal Student Aid's chart lists the rest. Payments on federal loans aren't due until you leave school or drop below half-time, you may be able to postpone or lower payments if you struggle, and there's no prepayment penalty [2]. For private loans, it tells you to check with your lender on each of those points [2]. The CFPB adds that private lenders aren't required to offer you any relief [7].
When do people use private student loans?
Mostly to cover what federal loans won't. That gap is wider now for graduate students and parents, who face new caps and no Grad PLUS.
Banks, credit unions, state agencies and schools make private student loans, and the lender sets the terms [2]. Many want an established credit record or a cosigner, many expect payments while you're still in school, and you can't fold them into a federal Direct Consolidation Loan later, though you can refinance them [2]. Some state agency loans can be forgiven in certain cases; most private lenders don't offer forgiveness [2].
- Fill out the FAFSA first. It's the application for every federal loan [2].
- Compare private offers by APR, not just the rate. Our guide to APR vs interest rate explains the gap.
- Check your credit before you apply, since private lenders price on it. See what counts as a good credit score.
Glisten check
Federal and private student loans, feature by feature
| Feature | Federal Direct Loans | Private student loans |
|---|---|---|
| Interest rate | Fixed; 6.52% to 9.07% for 2026-27 [1] | Fixed or variable, set by the lender [2] |
| Credit check | Only for PLUS loans [2] | Often needs a credit record or a cosigner [2] |
| Payments in school | Not due until you leave or drop below half-time [2] | Many lenders require them [2] |
| Interest subsidy | Subsidized loans for undergraduates with financial need [5] | Often not subsidized [2] |
| Income-based payments | RAP: 1% to 10% of AGI, $10 minimum [3] | Check with the lender [2] |
| Forgiveness | PSLF for public service; RAP discharge after 30 years [2][3] | Rare; some state agency loans [2] |
| Prepayment penalty | None [2] | Make sure there isn't one [2] |
| Federal consolidation | Yes, into a Direct Consolidation Loan [2] | Not eligible; refinancing only [2] |
We don't rank either side. A borrower with strong credit and a short payoff plan may well get a lower rate privately. The cost is everything in the middle rows of this table, which federal law sets and a private lender is free to leave out.
Is this right for you?
Best for
- Students and parents deciding how to pay for the 2026-27 school year.
- Graduate students working out what to do now that Grad PLUS is closed to them.
Not ideal for
- Borrowers already in repayment who want to switch plans. Your servicer and StudentAid.gov have your loan details.
- Anyone looking for a private lender recommendation. We don't rank lenders.
Frequently asked questions
What is the federal student loan interest rate for 2026-27?
6.52% for undergraduate Direct Loans, 8.07% for graduate and professional unsubsidized loans and 9.07% for PLUS loans, fixed for the life of the loan [1].
Is Grad PLUS gone?
For new graduate and professional borrowers, yes, since July 1, 2026. Students in the interim exception can still get it through the 2028-29 award year at most, and none are made from 2029-30 [4].
Do federal student loans check your credit?
Only PLUS loans do. Direct Subsidized and Unsubsidized Loans don't require a credit check [2].
Can I put private loans into a federal consolidation loan?
No. Private loans can't go into a Direct Consolidation Loan, though you can refinance them with a private lender [2].
What is the RAP plan?
The Repayment Assistance Plan, which started July 1, 2026. Payments are 1% to 10% of AGI divided by 12, minus $50 per dependent, with a $10 minimum, and any balance left after 30 years may be discharged [3].
How we know this
On November 2, 2026 we read Federal Student Aid's pages on interest rates and fees, federal vs private loans and Direct Subsidized and Unsubsidized Loans, its One Big Beautiful Bill Act updates page and definitions page (both last updated October 30, 2026), its income-driven repayment FAQ, and the CFPB's page on repaying federal and private loans. Dates and limits are stated only as those pages give them. This is general information, not financial advice.
- Interest rates and fees for federal student loans, Federal Student Aid, U.S. Department of Education. Checked November 2, 2026.
- Federal versus private loans, Federal Student Aid, U.S. Department of Education. Checked November 2, 2026.
- One Big Beautiful Bill Act: important definitions (last updated Oct. 30, 2026), Federal Student Aid, U.S. Department of Education. Checked November 2, 2026.
- One Big Beautiful Bill Act updates (last updated Oct. 30, 2026), Federal Student Aid, U.S. Department of Education. Checked November 2, 2026.
- Direct Subsidized and Direct Unsubsidized Loans, Federal Student Aid, U.S. Department of Education. Checked November 2, 2026.
- Top FAQs about income-driven repayment plans, Federal Student Aid, U.S. Department of Education. Checked November 2, 2026.
- Options for repaying your federal and private student loans, CFPB. Checked November 2, 2026.