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Portrait of young woman, sitting at kitchen table, filling out law school student loan application forms.
Portrait of young woman, sitting at kitchen table, filling out law school student loan application forms.
Financial Education Student Loans Financial Aid Aspiring Law Students Personal Finance Article
Author: LeAndra Ross
Author: LeAndra Ross
Financial Education Student Loans Financial Aid Aspiring Law Students Personal Finance Article

Federal vs. Private Student Loans: Key Differences for Student Loan Borrowers

Federal vs. Private Student Loans: Key Differences for Student Loan Borrowers

The Working Families Tax Cut Act (also referred to as the One Big Beautiful Bill Act), passed on July 1, 2025 and eliminated the Federal Direct Graduate PLUS Loan, introducing new borrowing limits for graduate and professional students. This shift has opened the door for an increased reliance on private student loans – new territory for many borrowers.

Both federal and private loans can help cover expenses, but they differ in benefits, risks, and repayment terms. Understanding these differences and assessing each option can help you make a more informed decision.

Federal Student Loans

Federal loans are borrowed from the U.S. Department of Education and available to eligible students who complete the Free Application for Federal Student Aid (FAFSA). Under the new law, professional students can borrow up to $50,000 annually with a Federal Direct Unsubsidized Loan. The loan carries a professional program limit of $200,000 and a lifetime limit of $257,500. Federal loans feature standardized eligibility requirements, interest rates, and repayment terms set by the government.

Despite the new limits, these loans generally provide more benefits and borrower protections than private student loans, including:

  • No credit check or co-signer needed to obtain the loan;
  • Access to income-driven repayment, where your payment is based on income and household information rather than your loan balance;
  • Access to loan forgiveness opportunities, where your remaining balance can be forgiven based on public service work or discharged under an income-driven repayment plan after 20-30 years; and
  • Forbearance and limited deferment options if financial hardship requires reducing or pausing payment.

In a nutshell: If you favor these benefits, have limited or adverse credit history, or are uncomfortable with economic and employment uncertainty or risk, you will likely benefit more from a federal loan.

Private Student Loans

Private loans are borrowed from banks, credit unions, and other financial institutions. Private lenders set their own eligibility requirements, interest rates, and repayment terms that can vary across lenders. Although private loans generally offer fewer benefits and protections than federal loans, they may be a useful option in the following circumstances:

  • You and/or your co-signer have strong creditworthiness that may result in a lower interest rate than what is offered on federal loans. However, even if a private loan offers a lower interest rate, borrowers should be cautious about relying entirely on private loans and should complete a full analysis of federal and private loan terms, protections, and repayment scenarios before making a decision;
  • You have thoroughly assessed all other terms and conditions beyond the interest rate – such as fees, repayment plan options, and borrower benefits – and are comfortable following those terms;
  • You anticipate a higher-paying career or want an aggressive approach to repaying your loans; and
  • You have exhausted your federal loan borrowing limit and need additional financing to cover the funding gap.

In a nutshell: Private loans tend to lack income-driven repayment options, forgiveness opportunities, and broad hardship protections. If these options are not a priority, these circumstances may be significant enough to consider a private loan as an alternative to a federal loan. 

In addition, keep in mind that your career and salary expectations while in law school may not align with reality after graduation. It is essential to create a financial plan for meeting private loan obligations if your career and salary outcomes differ from your original expectations.

The Bottom Line

Pursuing a law degree may be one of the largest investments you make, and how you finance it can affect your life for years. For many, the most practical approach will be to borrow the Federal Direct Unsubsidized Loan first, then a private student loan if a funding gap remains. This approach takes advantage of federal loan benefits that provide the greatest value and can help reduce costs on remaining expenses, helping you borrow more wisely.

Ultimately, the decision can be nuanced. At AccessLex Institute®, we are committed to helping you make informed decisions when financing your legal education. Here are additional resources to explore:

Finally, if you would like help evaluating your options, schedule a one-on-one financial coaching call with an AccessLex Accredited Financial Counselor®. These conversations are free, confidential, and can help you assess your borrowing options to create a plan that works for you.

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