Private Student Loans

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Searching for the best student loans

Private student loans come from a private lender rather than the U.S. government.

Federal student loans usually have the best terms and rates, but you might not always be able to get them. Maybe you’ve reached your maximum, you or don’t have the right immigration status.

Interest rates on private student loans can differ widely from lender to lender. Often, you’ll need a cosigner in order to get the loan, and the cosigner’s credit will also affect the rate you get.

If you need a private student loan, check with your school, your local credit unions or even your bank to see if they have any options. You should also review online student loan lenders, as some are very competitive.

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Private vs. Federal loans

Private student loans

Student loan companies set their own interest rates, often giving you a choice between a fixed or variable rate. Private lenders examine your financial credentials, such as your credit score and annual income. You might need to apply with a cosigner if you can’t qualify independently.

Borrowers generally have more flexibility with private student loans. Instead of being assigned a fixed-rate federal loan with a standard 10-year term, you might opt for a variable rate and a shorter or longer repayment plan.

Private education debt also tends to have a higher borrowing limit, allowing you to cover any gaps in your school’s cost of attendance. That said, it’s wise to only borrow what you need — and what you can afford to repay. Estimate your potential monthly dues using today’s rates and a student loan repayment calculator.

Federal student loans

The Department of Education issues federal student loans, with Congress determining the fixed interest rate each year. You won’t need to pass a credit check to qualify for most federal student loans, although PLUS loans require a review of your credit report to look for adverse credit history.

Federal loans are also eligible for a variety of repayment plans, such as income-driven repayment, deferment and forbearance, and various student loan forgiveness programs. However, you can’t borrow an infinite amount of federal loans — once you reach the federal student loan limit, you’ll need to consider additional ways to cover any remaining expenses.

How to maximize federal and free financial aid

Because federal student loans carry such wide-ranging repayment flexibility, it’s recommended to max out your federal loan allotment before resorting to a private student loan.

The Free Application for Federal Student Aid (FAFSA) is the gateway to federal loans and other aid programs. After completing the FAFSA, you’ll be eligible to accept loans offered by your school — but only up to the annual limit. Be sure to look for work-study opportunities and other grants listed on your financial aid award letter.

How do private student loans work?

For private student loans, you typically shop around with banks, credit unions and online lenders to find the best overall loan offer. Unlike federal loans, private loans are credit-based, so your eligibility and terms depend on your credit history. If you’re a student with a thin or poor credit file, you could improve your application by adding a creditworthy cosigner.

Once you’ve gained approval, your lender will certify the funding amount with your college or university. You may be allowed to borrow up to 100% of your cost of attendance minus other financial aid you expect to receive. The funds are usually disbursed directly to the school, with any excess amount credited to you later.

Your private lender may have a loan servicer that manages the repayment of your debt. Keep in mind that private loans have fewer safeguards if you run into trouble after leaving school, so consider them as a supplement to federal loans, rather than a substitute.

Pros and cons of private student loans

Private student loans can help with additional expenses not covered by financial aid. However, it’s worth weighing the pros and cons before taking on more debt.

The latest on private student loan interest rates

Student loan interest rates can fluctuate based on market conditions and inflation. The government determines the interest rate for federal student loans each year, based on the bond market. In contrast, private lenders can set whatever rate they want — although they typically remain competitive with the overall student loan environment.

When the cost of living increases, student loan rates tend to follow. With federal rates on the rise,some highly-rated student loan companies have also increased their rates.

It’s crucial to shop around to secure the most competitive rate between private student loan lenders. Keep up with your bills and maintain low credit card balances to increase your credit score, which can help unlock lower interest rates.

Find and compare private student loans

The FAFSA is the gateway toward federal loans, but finding a private student loan might require more legwork.

Here are some ways to jumpstart your research:

  • Talk to your school’s financial aid office about its potential list of approved lenders
  • Ask family members, friends and classmates for lender recommendations
  • Check with local credit unions or a bank where you’re a customer

Along the way, confirm that your preferred loan suits your purposes and that your school will approve the lender. Ultimately, your school will have the final say in certifying your loan.

Many will let you confirm your eligibility and check your rates online without impacting your credit score. By shopping around, you can find the best loan for you, reducing the long-term costs of borrowing.

The following factors can help you compare student loan lenders:

  • Fixed and variable APRs
  • Rate discounts
  • Fees for application, origination and prepayment
  • In-school repayment options
  • Choice of repayment terms
  • Cosigner release policy
  • Guaranteed protections, such as economic hardship forbearance
  • Other perks, such as credit score tracking
  • Lender ratings and customer service track records

How to get a private student loan

1. Shop for private student loans

  • Check interest rates and terms online and with your local financial institutions
  • Consider adding a cosigner to unlock better rates
  • Weigh secondary features, such as unemployment protections or special discounts
  • “Test-drive” the customer service teams of your potential lenders with any questions you have

2. Choose a loan and apply

  • If you prequalify, you will still need to officially apply for a private student loan
  • Supply personal and financial information for yourself and your cosigner (if you have one)
  • Select a fixed or variable interest rate and the length of loan term
  • Your lender will work with your school to certify the loan amount
  • The funds will ideally disburse before the start of your next academic term

3. Don’t forget about next year

  • Start the financial aid process early for your next year of school
  • Apply for “gift aid” such as scholarships and grants to lessen future borrowing
  • Consider private lenders offer multi-year approval to streamline ensuing applications

Alternatives to private student loans

While private student loans help many students and their families afford college, this route may not suit everyone.

If you want to avoid student loans entirely (or at least limit them), here are some alternative funding options:

  • Exhaust all federal options: Review your financial aid award letter to ensure you’ve maxed out all available financial assistance. If in doubt, reach out to your financial advisor. Often certain loans or programs are overlooked, such as work-study opportunities or unsubsidized federal loans.
  • Boost your savings account: It’s never too late to sock away money into a high-yield savings account. You can also open a 529 college savings account and encourage friends and family to donate funds via Gift of College or Ugift.
  • Consider community college: Attending community college first could potentially reduce your total student loan debt by thousands of dollars. Alternatively, you can apply to a low-cost university to save on tuition costs. You can always transfer to your dream school at a later date.
  • Look into a ‘no loan’ college: Many schools are trying to make education more affordable and accessible to all. Check out our list of 56 ‘no loan’ colleges to potentially eliminate your need for student loans.
  • Apply for grants and scholarships: Researching grants and scholarships can take time and effort, but receiving extra funds you don’t need to repay is worth it. There’s something for everyone, including full-ride scholarships, grants and scholarships for women, scholarships for Latino and Hispanic students and more.
  • Increase your income: Juggling college classes and a job can be a lot to manage, but even a few hours of work can make a difference. Look for a college job that pays well with flexible hours, or consider starting your own side hustle.
  • Trim your budget: Create a detailed budget outlining your monthly habits. Do you really need that fancy latte? Even if it seems inexpensive, remember that every little bit helps.

Frequently asked questions