- Federal student loans still offer stronger protections, but changes in repayment programs, especially for parents, change the dynamic.
- Private student loans can offer lower rates to creditworthy borrowers or those with a strong co-signer
- Families should weigh costs, repayment flexibility, and forgiveness options before choosing a loan
As interest rates drop and federal repayment programs undergo major changes, many families are taking a second look at private student loans — especially parent borrowers. While federal loans have long been considered the safest option due to built-in protections for borrowers and eligibility for student loan forgiveness programs, these benefits now come with more caveats than in previous years.
The recent cancellation of the SAVE repayment plan and the pending implementation of the new Repayment Assistance Plan (RAP) in 2026 have created new uncertainty about how income-based repayment will work.
Meanwhile, private student loan lenders offer interest rates as low as 2.89% to the most creditworthy borrowers, with some offering perks like job training, auto-payment discounts, and hardship deferral options that mimic federal programs.
The question is not whether private loans have improved. It’s about whether the federal loan safety net is still strong enough to justify the additional costs for some borrowers.
Cost Comparison: Federal vs. Private Student Loans
Interest rates on federal student loans are very “average” compared to the private market, but they do become more expensive for parents and graduate students.
For undergraduate students, Federal Direct Loans come with a fixed interest rate of 6.39% for the 2025-26 academic year. Graduate loans are even higher at 7.94%. These rates apply regardless of credit score or income, and include a 1.057% loan fee charged upfront.
Parent PLUS loans are the highest, at 8.94%, with a whopping 4.228% origination fee.
By contrast, many private lenders advertise fixed rates starting at less than 3% and variable rates of around 4% for borrowers with strong credit files. For families with a qualifying co-signer, the total cost of borrowing can be much lower than federal options.
However, these lower rates often come with trade-offs: no forgiveness on private student loans, stricter repayment terms, and fewer options for deferment or forbearance in times of hardship. Some lenders offer temporary relief or death and disability relief, but these are based on policies rather than the law and may change over time.
Borrower protection varies sharply
Federal student loans still carry many advantages that private loans can’t (and sometimes can’t):
These protections can be life-saving for borrowers facing job loss, illness, or income instability. For borrowers seeking PSLF or IDR loan forgiveness, private loans are excluded entirely.
However, not every borrower benefits from these programs. Borrowers who expect to pay back loans in less than 10 years, or who have never worked in public service, may find the lower costs of private loans to be worth the trade-off.
When Private Student Loans Make More Sense
There are scenarios where a private student loan could be the best option in 2026:
- PARENT BORROWERS PLUS Parent loans carry plus a fixed interest rate of 8.94% and a loan origination fee of 4.228%. Beginning in 2026, these amounts will only be required to be repaid under the standard repayment plan, and will not be eligible for PSLF. Additional interest rates for parents may drop to around 8%, but this is still higher than many private loans.
Private lenders may offer lower interest rates and longer terms that may better suit the needs of parents borrowing for children. The trade-off is loss of federal protection, but the main benefits (IDR and PSLF) will be essentially eliminated in 2026 and beyond.
- Short term borrowers If the borrower knows they will repay the loan within five years, the savings from a private loan with a 3% interest rate compared to a federal loan at 6.39% (or even higher if you are a graduate student) can add up quickly. Those confident in stable income and employment may prioritize lower rates over the possibility of forgiveness they never intend to use.
- Graduate students with high earning potential Graduate students in business, law, medicine, or other high-paying fields may qualify for private loan rates that are lower than federal graduate loan rates. Banks like to lend to high-income professions, such as medical school. Furthermore, with new graduate school borrowing caps, borrowers may need to turn to private loans to supplement anyway.
Final thoughts
Families comparing loans need to consider more than just the interest rate. Key questions include:
- Is the borrower eligible for PSLF or income-driven forgiveness?
- Is the borrower’s income stable or is there a risk of hardship?
- How long will payment take?
- Is a co-signer available to help secure better terms for the private loan?
- Are interest rate caps, deferrals or other protections included in the loan agreement?
- Should you get a life insurance policy to protect against this risk?
Private student loans may be the right choice for some borrowers in 2026. But they carry more risk if life doesn’t go as planned. For those who prioritize flexibility, forgiveness, or safety nets, federal loans still provide peace of mind, but they may come at a price.
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