Student loans fall into two categories: federal student loans and private student loans.

There are big differences between federal and private student loans, including how much you can borrow, how much they cost in interest, and how you pay them back. So, it’s extremely important to understand which type of student loan best fits your needs.

We’ll take a closer look at the differences between private student loans and federal student loans to help you decide which is right for you.

Federal Student Loans: How Much Can You Borrow?

If you are an undergraduate student, the maximum amount you can borrow in federal student loans ranges from $5,500 to $12,500 per year , depending on what year you are in school and your dependency status. If you are a graduate or professional student, you can borrow up to $20,500 each year.

In order to decipher the table above, you need to know the difference between subsidized and unsubsidized loans and dependent and independent students.

Direct subsidized loans are offered to undergraduate students who can demonstrate financial need, measured by the difference between the cost of attendance at your school (COA) and your expected family contribution (EFC). While COA varies from school to school, your EFC is the same regardless of which school you attend.

Direct unsubsidized loans are offered to undergraduate students and graduate students, with no requirement to demonstrate financial need. Your school determines how much you can borrow based on your cost of attendance and other financial aid you receive, but the amount can not exceed the upper limit set by the federal government.

Dependency is determined by how you answer the questions on the FAFSA (Free Application for Federal Student Aid) form. If you are a dependent student , you will report your and your parents information. If you are an independent student , you will report your own information (and, if you are married, your spouse’s information too).

Private Student Loans: How Much Can You Borrow?

In 2022-23, the average cost of attendance (encompassing tuition and fees, room and board, books and supplies, transportation, and other expenses) ranged from $19,230 to $57,570, according to nonprofit organization College Board. The exact breakdown was:

• Public two-year in-district students - $19,230
• Public four-year in-state students - $27,940
• Public four-year out-of-state students - $45,240
• Private four-year students - $57,570

Clearly, there is a huge gap between the annual cost of attendance and the amount covered by federal loans. You may be able to fill the gap from your own (or your parents’) funds, scholarships, grants, or other sources. Private loans can also fill the gap. Most private lenders offer to cover up to 100% of the cost of attendance , provided you meet the eligibility requirements.

To qualify for a private student loan, you usually need to:

• Be a US citizen or permanent resident, or have a cosigner who is a U.S. citizen or permanent resident;
• Be enrolled in a degree program and be attending classes full time, half-time or less than half-time at an eligible school;
• Meet the minimum credit score requirements, or have a cosigner who meets the minimum credit score requirements; and
• Show satisfactory academic progress during school certification. Your lender will request this information directly from your school, with no need to provide any information yourself.

Bottom line

Federal student loans usually offer lower interest rates than private student loans. You also don’t have to pass a credit check to get one. Most students choose to borrow the maximum amount they are eligible for in federal student loans. But if you have additional expenses not covered by your federal loan, you can make up the balance with a private loan.

Taking out a private student loan does require a credit check, and you’ll pay higher interest rates. However, the advantage of a private loan is that it can cover up to 100% of your college expenses.

Want to explore your options? Check out our list of the best student loan providers to help you pay for your education.