Short answer: if you need to borrow for college or career school, Federal Student Aid says to start with federal loans (StudentAid.gov). Their terms are set by law, the rate is fixed, and they come with protections a personal loan does not have: payments tied to income, deferment and forbearance, and discharge if the borrower dies or becomes totally and permanently disabled. A personal loan's terms are set by the lender and its contract. To get federal loans you first fill out the FAFSA form.
Side by side
| Federal student loan | Personal loan | |
|---|---|---|
| Who sets the terms | Federal law (StudentAid.gov) | The lender, in your contract |
| Rate | Fixed. 6.52% for undergraduate Direct Loans first disbursed from July 1, 2026 to June 30, 2027 (StudentAid.gov) | Set by the lender, based on your credit; fixed or variable |
| Fee | 1.057% on Direct Subsidized and Unsubsidized Loans first disbursed before Oct. 1, 2027, taken out of the money paid out (StudentAid.gov) | Some lenders charge an origination fee |
| Credit check | None for Direct Subsidized and Unsubsidized Loans; PLUS loans check credit (StudentAid.gov) | Usually, by the lender |
| When payments start | After you graduate, leave school or drop below half time (StudentAid.gov) | Set by the loan contract |
| Payments tied to income | Yes, through income-driven repayment (StudentAid.gov) | No federal plan; the payment is set by the contract |
| Pause if you cannot pay | Deferment and forbearance, if you qualify (StudentAid.gov) | Only what the lender offers |
| Discharge | On death (StudentAid.gov), total and permanent disability (StudentAid.gov), school closure (StudentAid.gov) | Only what the contract says |
| Prepayment penalty | None (StudentAid.gov) | Check the contract |
The federal protections, in more detail
- Repayment plans. You can pick a fixed payment or a plan based on your income and family size. If your loan was first disbursed on or after July 1, 2026 and you do not pick a plan, your servicer puts you on the Tiered Standard Plan, a fixed payment plan. The income-based plan for those newer loans is the Repayment Assistance Plan (RAP), where the payment is a percentage of your income divided by 12 (StudentAid.gov).
- Changes from the 2025 law. The One Big Beautiful Bill Act changed repayment plans and loan limits, mostly for loans first disbursed on or after July 1, 2026, and some changes come in later years (StudentAid.gov). If you already have older federal loans, a new loan can change which plans you can use, so check that page first.
- Deferment. You may be able to stop payments for reasons such as unemployment, economic hardship, cancer treatment or military service. On subsidized loans you do not pay the interest that builds during deferment; on unsubsidized and PLUS loans you generally do (StudentAid.gov).
- Forbearance. You can stop or lower payments for a time, but interest keeps building and the amount of forbearance is limited (StudentAid.gov).
- Discharge. Federal student loans are discharged when the borrower dies, once proof of death is sent; a parent PLUS loan is also discharged if the student dies (StudentAid.gov). Total and permanent disability and some school closures can also discharge them (StudentAid.gov, StudentAid.gov). For what happens to a personal loan when a borrower dies, see personal loan debt after death.
Worked example
Example only, our calculation: borrowing $10,000, with payments starting right away and no fee counted. A federal undergraduate Direct Loan at 6.52%, and a personal loan at 15% APR, a rate we picked for illustration; your offer depends on your credit and the lender.
| Loan | Rate | Term | Monthly payment | Total repaid | Interest |
|---|---|---|---|---|---|
| Federal, 10 year schedule | 6.52% | 10 years | $113.65 | $13,638.00 | $3,638.00 |
| Federal, paid off in 5 years | 6.52% | 5 years | $195.76 | $11,745.60 | $1,745.60 |
| Personal loan (example rate) | 15% | 5 years | $237.90 | $14,274.00 | $4,274.00 |
Over the same 5 years, the personal loan in this example costs $2,528.40 more. Two things the table leaves out: on an unsubsidized federal loan interest builds while you are in school, and the 1.057% federal loan fee ($105.70 on $10,000) means you receive $9,894.30 but repay the full $10,000 (StudentAid.gov). A personal loan may have an origination fee too; our origination fee calculator shows its effect.
Private student loans are a third option
A private student loan is made by a bank, credit union, state agency or school for school costs (StudentAid.gov). Under federal rules, a loan made expressly for college costs that is not a federal loan is a private education loan (12 CFR 1026.46(b)(5)), and it comes with steps a general personal loan does not have: you get 30 days to accept the terms, 3 business days to cancel after the final disclosure, and for a student attending college you sign a self-certification form first (12 CFR 1026.48). Federal Student Aid says private student loans are generally more expensive than federal ones (StudentAid.gov).
Taxes
Interest on a qualified student loan can be deductible (IRS Topic 456), and the IRS rules on what counts are in our guide is personal loan interest tax deductible? This is general information, not tax advice. If a parent or relative is thinking of cosigning a private loan, see the risks of cosigning.
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Disclosure: Modern Lending Solutions is not a lender, loan broker or agent for any lender or loan broker, and does not make credit decisions. Any compensation we receive is paid by participating lenders, only for advertising services. This guide is general information, not financial or legal advice.
Sources
- Federal Student Aid: Federal versus private loans
- Federal Student Aid: Interest rates and fees for federal student loans
- Federal Student Aid: Federal student loan repayment plans
- Federal Student Aid: One Big Beautiful Bill Act updates (last updated Aug. 24, 2026)
- Federal Student Aid: Student loan deferment
- Federal Student Aid: Student loan forbearance
- Federal Student Aid: Discharge due to death
- Federal Student Aid: Total and permanent disability discharge
- Federal Student Aid: Closed school discharge
- Regulation Z, 12 CFR 1026.46(b)(5): definition of a private education loan
- Regulation Z, 12 CFR 1026.48: private education loans, 30 days to accept, 3 business days to cancel, self-certification
- IRS: Topic no. 456, Student loan interest deduction