5 Private Student Loan Factors You Should Consider Before Applying

private student loans

Federal student loans can make paying for college more affordable and offer special borrower protections. But what happens when federal loan limits fall short of your cost of attendance?

In order to bridge the gap, you might need to consider taking out private student loans.

To help you understand the differences between the two loan types and the possible cons of private student loans, here are five factors to consider.

1. You’ll likely pay higher interest rates

The Department of Education offers the following fixed interest rates on loans disbursed between July 1, 2017, and July 1, 2018:

Loan Type Borrower Type Interest Rate
Direct Subsidized Loan Undergraduate students 4.45%
Direct Unsubsidized Loan Undergraduate students 4.45%
Direct Subsidized Loan Graduate or professional students 6.00%
Direct PLUS Loan Parents and graduate or professional students 7.00%

Federal student loans can make paying for college more affordable and offer special borrower protections. But what happens when federal loan limits fall short of your cost of attendance?

In order to bridge the gap, you might need to consider taking out private student loans.

To help you understand the differences between the two loan types and the possible cons of private student loans, here are five factors to consider.

1. You’ll likely pay higher interest rates

Although you might find lower interest rates from private lenders such as Citizens Bank or College Ave, they’re typically variable interest rates, which can increase over time. Plus, you need to have great credit and a solid income — or at least a cosigner who does — to get the best rates private lenders offer.

As a result, when it comes to fixed variable interest rates, federal student loans are likely cheaper for student borrowers in the long run.

2. You might not get approved on your own

If you don’t have any experience with credit or you’ve made some credit mistakes in the past, you’ll have a hard time getting approved for private student loans. Federal student loans, on the other hand, don’t require a credit check at all.

Having bad or no credit doesn’t mean an automatic denial, however. You can ask a parent or other trusted person to cosign a loan with you. If their credit and income meet the lender’s requirements, that can be enough to get approved.

That said, asking someone to cosign is no small request. By adding their name to the loan, your cosigner is equally responsible for the payments.

Also, the loan will show up on their credit report. So if you end up missing a student loan payment or going into student loan default, it could hurt both of you creditwise.

3. You won’t get access to income-driven repayment plans

Depending on how much student debt you end up with at graduation, making your monthly payment might be difficult.

With federal student loans, you can apply for an income-driven repayment (IDR) plan. These plans can lower your monthly payment based on your income level and family size. In turn, your student loan debt becomes more affordable and your cash flow increases for other expenses.

Private student lenders, however, typically don’t offer a way to lower your monthly payment. One exception is the Rhode Island Student Loan Authority, which offers an income-based repayment plan to eligible borrowers.

If you don’t think you’ll need to rely on an IDR plan for lower payments, then this federal student loan benefit might not be as important to you.

4. You might not qualify for student loan forgiveness

Student loan forgiveness programs for private student loans are rare. So if you plan to take on a lot of debt, federal student loans might be a better option.

You’ll have access to the Public Service Loan Forgiveness Program through the federal government as well as several other student loan forgiveness programs depending on your loan type and career plans.

Student loan forgiveness isn’t free, though. In most cases, you have to commit to a certain career path to qualify, and you might not want to tie yourself down. Also, forgiven debt can be taxable as income in the year your debt was canceled.

5. You’ll need to devote time to researching lenders

There are several private student loans out there, and it’s not always clear which one is the best. Private student loan companies often offer a range of interest rates you might qualify for, so there’s no way to know for sure what your rate will be without pre-qualifying or applying.

Private student loan companies can offer other features to consider. For example, some lenders allow you to apply to remove your cosigner from the loan after you meet certain requirements. Others, including Discover and SunTrust, offer a balance reduction if you get good grades or graduate.

This can make the process of applying for private loans for students daunting. But if you don’t have access to federal loans, you’ll want to shop around and compare several private student loans to make sure you get the best deal.

Compare private student loans with all borrowing options

If you need private student loans to get through college, they’re better than some alternatives. For example, personal loans and credit cards charge higher average interest rates than private student loans.

But compared to federal student loans, private student loans are likely more expensive and don’t offer as much flexibility with repayment.

As you consider your needs, also look for other ways to pay for college. The more you do to earn money to cover your college costs, the less student loan debt you’ll have to take on.

Interested in a personal loan?

Here are the top personal loan lenders of 2018!
LenderRates (APR)Loan Amount 
1 Includes AutoPay discount. Important Disclosures for SoFi.

SoFi Disclosures

  1. Terms and Conditions Apply: SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet SoFi’s underwriting requirements. Not all borrowers receive the lowest rate. To qualify for the lowest rate, you must have a responsible financial history and meet other conditions. If approved, your actual rate will be within the range of rates listed above and will depend on a variety of factors, including term of loan, a responsible financial history, years of experience, income and other factors. Rates and Terms are subject to change at anytime without notice and are subject to state restrictions. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. Licensed by the Department of Business Oversight under the California Finance Lender Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS # 1121636. (www.nmlsconsumeraccess.org)
  2. Personal LoansFixed rates from 5.49% APR to 14.24% APR (with AutoPay). Variable rates from 4.98% APR to 11.44% APR (with AutoPay). SoFi rate ranges are current as of December 21, 2017 and are subject to change without notice. Not all rates and amounts available in all states. Not all applicants qualify for the lowest rate. If approved for a loan, to qualify for the lowest rate, you must have a responsible financial history and meet other conditions. Your actual rate will be within the range of rates listed above and will depend on a variety of factors, including evaluation of your credit worthiness, years of professional experience, income and other factors. Interest rates on variable rate loans are capped at 14.95%. Lowest variable rate of 4.98% APR assumes current 1-month LIBOR rate of 1.34% plus 3.89% margin minus 0.25% AutoPay discount. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account.

2 Important Disclosures for Citizens Bank.

Citizens Bank Disclosures

  1. Personal Loan Rate Disclosure: Fixed interest rates range from 5.99% – 16.24% (5.99% – 16.24% APR) based on applicable terms and presence of a co-applicant. Lowest rates shown are for eligible applicants, require a 3-year repayment term, and include our Loyalty and Automatic Payment discounts of 0.25 percentage points each, as outlined in the Loyalty Discount and Automatic Payment Discount disclosures. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.
  2. Loyalty Discount: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower has a qualifying account in existence with us at the time the borrower has submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, student loans or other personal loans owned by Citizens Bank, N.A. Please note, our checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI and VT. This discount will be reflected in the interest rate and Annual Percentage Rate (APR) disclosed in the Truth-In-Lending Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan, and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.
  3. Automatic Payment Discount: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their Citizens Bank Personal Loan during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account two or more times within any 12-month period, the borrower will no longer be eligible for this discount.
7.39% - 29.99%$1,000 - $50,000
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4.98% - 14.24%1$5,000 - $100,000
Check rate nowon SLH's secure site
8.00% - 25.00%$5,000 - $35,000
Check rate nowon SLH's secure site
5.99% - 16.24%2$5,000 - $50,000Visit Citizens
5.99% - 35.89%$1,000 - $40,000Visit LendingClub
5.25% - 14.24%$2,000 - $50,000Visit Earnest
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Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality and will make a positive impact in your life. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print, understand what you are buying, and consult a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time. Please do your homework and let us know if you have any questions or concerns.