Banks that offer federal student loans through the government program
The federal government, not banks, makes most student loans to undergraduates and graduate students. Banks act as loan servicers — they collect your payments and handle customer service — but they do not decide who gets money or how much. The U.S. Department of Education funds the loans.
If you took out federal loans after 2010, your servicer might be Nelnet, Mohela, Aidvantage, or Great Lakes. These companies process payments and answer questions, but you cannot choose your servicer. The Department of Education assigns you one. You can find your current servicer by logging into studentaid.gov with your FSA ID.
Before 2010, some federal loans were made through the Federal Family Education Loan Program (FFEL), where banks actually originated the loans. Those loans are now mostly serviced by the same companies listed above. If you have an FFEL loan, your bank was the original lender, but your servicer today is likely one of the four named above.
Key Takeaways
- Federal student loans come from the U.S. Department of Education, not from banks, though banks service the loans and collect payments.
- Your loan servicer is assigned to you and may be Nelnet, Mohela, Aidvantage, or Great Lakes; you can find yours at studentaid.gov.
- Private student loans do come from banks and credit unions, but they require a credit check and typically charge higher interest rates than federal loans.
- Federal loans offer fixed interest rates set by Congress and protections like income-driven repayment plans; private loans do not.
- You must complete the FAFSA to be considered for federal loans; private loans have separate applications through each lender.
Private student loans from banks and credit unions
Banks and credit unions do offer their own student loans, separate from the federal program. These are called private student loans. Common lenders include Discover, Wells Fargo, U.S. Bank, Sallie Mae, and many regional banks and credit unions. Each sets its own interest rate, fees, and terms.
Private loans require a credit check. If you have no credit history or a low score, you may need a cosigner — usually a parent or guardian with established credit. Interest rates vary based on creditworthiness and can be fixed or variable. Variable rates change over time and can be higher or lower than fixed rates depending on market conditions.
Private loans do not include federal protections like income-driven repayment plans, public service loan forgiveness, or automatic forbearance if you lose your job. You apply directly to the lender, not through the FAFSA. Each bank has its own application process and timeline.
How federal loans and private loans differ
| Feature | Federal Loans | Private Loans |
|---|---|---|
| Who funds the loan | U.S. Department of Education | Banks, credit unions, or other private lenders |
| Credit check required | No | Yes |
| Interest rate type | Fixed, set by Congress | Fixed or variable, set by lender |
| Income-driven repayment | Yes | Usually no |
| Forgiveness programs | Yes (PSLF, IDR forgiveness) | No |
| How to start | Complete FAFSA | Apply directly to lender |
Where to find federal loans through the FAFSA
To borrow federal student loans, you must complete the Free Application for Federal Student Aid (FAFSA) at fafsa.gov. The FAFSA opens October 1 each year and remains open through June 30. You provide information about your income, assets, and family situation. The Department of Education uses this to calculate how much you can borrow.
After you submit the FAFSA, your school receives your Student Aid Index (SAI). The school's financial aid office then determines your loan amount based on your cost of attendance and other aid you receive. You do not choose your servicer — the Department of Education assigns one. You will receive a loan disclosure statement before money is sent to your school.
Types of federal loans available
Subsidized Direct Loans are for undergraduate students with financial need. The government pays the interest while you are in school. Unsubsidized Direct Loans are available to undergraduates and graduate students regardless of need; interest accrues while you are in school, meaning you owe more when repayment begins.
Direct PLUS Loans are for graduate students and parents of undergraduates. These require a credit check but not a cosigner. Interest rates are higher than other federal loans. Direct Consolidation Loans allow you to combine multiple federal loans into one, which can simplify repayment but may extend your timeline and increase total interest paid.
Comparing interest rates and terms across lenders
Federal loan interest rates are set by Congress and are the same regardless of which servicer handles your account. For the 2024–2025 school year, undergraduate Direct Loans carry a fixed rate of 8.5 percent. Graduate Direct Loans are 10.5 percent. Direct PLUS Loans are 11.5 percent. These rates change each year based on the 10-year Treasury note.
Private loan rates vary widely. Banks typically offer rates between 4 and 14 percent depending on your credit score and the lender. Some offer variable rates that start lower but can increase. To compare, you need to contact each lender directly or visit their website. Many allow you to check your rate without a hard credit pull, which does not affect your credit score.
Federal loans also have a origination fee — a small percentage deducted from your loan amount before it reaches your school. For Direct Loans, this fee is currently 1.1 percent. Private loans may or may not charge origination fees; check the loan disclosure before you commit.
What happens if you cannot repay
Federal loans offer income-driven repayment plans that cap your monthly payment at a percentage of your discretionary income — as low as 0 percent if your income is very low. After 20 or 25 years of payments (depending on the plan), remaining balance may be forgiven. You can also request forbearance or deferment if you face hardship, which pauses payments temporarily.
Private loans have no such protections. If you fall behind, the lender can pursue collection, damage your credit, and potentially sue. Some private lenders offer temporary forbearance during hardship, but this is at their discretion and may not be available. Interest often continues to accrue during forbearance, increasing what you owe.
If you have both federal and private loans and money is tight, prioritize federal loans first because of their flexibility. You can then work with your private lender on a payment plan or forbearance if needed.
Frequently Asked Questions
Can I get a student loan from a bank without completing the FAFSA?
Yes, but only a private student loan. Banks do not participate in the federal program, so they do not require the FAFSA. You apply directly to the bank or credit union. However, you should still complete the FAFSA because federal loans are usually cheaper and offer more protections, even if you also take a private loan.
What if I have bad credit and need a student loan?
Federal loans do not require a credit check, so bad credit does not disqualify you. Complete the FAFSA to see what federal loans you may receive. If you need more money, some private lenders will work with a cosigner, or you can look for lenders that specialize in bad-credit borrowing, though rates will be higher.
Can I switch my loan servicer if I do not like the one assigned to me?
No, you cannot choose your servicer for federal loans. The Department of Education assigns servicers. However, you can contact your servicer to resolve issues, and you can file a complaint with the Consumer Financial Protection Bureau if you believe the servicer is treating you unfairly.
Do all banks offer student loans?
No. Many smaller banks and credit unions do not offer private student loans. Large national banks like Wells Fargo, U.S. Bank, and Discover do. Check your own bank's website or call to ask. You can also search lenders on sites like College Board or FinAid to see which ones operate in your state.
What is the difference between a loan servicer and a lender?
A lender provides the money. For federal loans, that is the Department of Education. A servicer collects your payments and handles customer service. The servicer does not decide your interest rate or loan terms — those are set by the lender. You interact with the servicer much more often than the lender.