Loan Choice (Federal vs. Private)

Borrower Characteristics

Among full-time (US Citizen/Permanent Resident) MBA students who borrow at CBS, roughly half choose to borrow federal Graduate PLUS loans and half choose to borrow private loans. Generally, students who borrow the federal loans share a number of key borrower characteristics that differ from those we generally see in students who choose to borrow private loans.

Borrower Characteristics Direct Federal Unsubsidized & Graduate Plus Private Loans
Credit History
  • Good credit or average credit
  • Perhaps a shorter established credit history, for example new permanent residents
  • Excellent credit
  • Generally longer established credit history
  • Access to a cosigner with excellent credit
Risk Tolerance
  • Generally lower risk tolerance
  • Generally higher risk tolerance
Repayment Plan/Strategy
  • Plan to take a longer time to pay
  • Expect to need flexibility to restructure their monthly payments
  • Unsure about their plans following graduation
  • Plan to pay the loan off aggressively over a short period of time
  • Less concerned about flexible repayment options
  • Confident in their repayment ability following graduation
Other Considerations or Trends
  • Students who have borrowed in the federal loan program for prior degrees and still have outstanding prior loan debt
  • Students who have dependents
  • Students who have borrowed previously but have paid the loans in full or who have borrowed a private loan in a prior degree

Differences Between Federal & Private Loans

In deciding between federal and private loan options, students should consider the differences between each loan type.  Below are some things to keep in mind when comparing loan products.

Federal Loans (Unsub/Grad Plus) Private Loans
Interest Rate
  • Fixed interest rate for both loans for the life of the loan
  • All borrowers receive the same interest rate, regardless of an individual's credit evaluation
  • May be fixed or variable
  • Depends on borrower’s credit evaluation by the lender
  • May be tied to a specific repayment plan as indicated on the loan application or promissory note
Origination Fee
  • Federal Direct Unsub =1.057% 
  • Federal Grad PLUS = 4.228% 

*(for loans first disbursed on or after Oct. 1, 2020)
  • Most private loans do not have an origination fee (varies by lender)
  • Origination fees are typically lower (2-2.5% on average)
Deferment/Grace Period
  • In-school deferment (repayment deferred until 6 months after graduation or enrollment drops below 6 credits)
  • In-school deferment (unless the terms of the loan require payment after disbursement)
  • Grace period is typically 6 months after graduation (may vary by lender)
Repayment Options
  • Flexible repayment plans
  • Standard repayment term is 10 years; Extended is 25 years
  • Income-based repayment plans available
  • May change repayment plan at least once per year
  • Repayment plans vary by lender (typically ranging from 5-15 years)
  • You may be required to commit to a repayment plan at the time of your application
  • Usually little to no flexibility to change repayment plans
Forbearance Options
  • Generous forbearance options for economic hardship or unemployment (up to 36 months) if you cannot make your loan payment
  • Forbearance options vary by lender and are typically much shorter than the federal forbearance
Automatic Discharge for Death or Disability
  • Loans are automatically discharged for total disability or death
  • Family members are not held responsible for loan payments
  • Discharge options vary by lender and are not guaranteed
  • Family members or spouse may be responsible for loans under these circumstances

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