Your Ultimate Guide to Private Student Loans

Advertiser Disclosure

Student Loan Hero Advertiser Disclosure

Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality. 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 to help you understand what you are buying. Be sure to consult with 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.

Editorial Note: This content is not provided or commissioned by any financial institution. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by the financial institution.

private student loans
Logo

OUR PROMISE TO YOU: Student Loan Hero is a completely free website 100% focused on helping student loan borrowers get the answers they need. Read more

How do we make money? It’s actually pretty simple. If you choose to check out and become a customer of any of the loan providers featured on our site, we get compensated for sending you their way. This helps pay for our amazing staff of writers (many of which are paying back student loans of their own!).

Bottom line: We’re here for you. So please learn all you can, email us with any questions, and feel free to visit or not visit any of the loan providers on our site. Read less


Need a student loan?

Check out our top picks below or learn more about other ways to pay for college.
2.84% to 10.97% APR1

Visit Lender

3.12% to 10.54% APR2

Visit Lender

3.37% to 11.87% APR3

Visit Lender

  • Variable APR

Understanding student loans can be daunting, especially if you’re trying to determine whether private student loans are for you. They’re very different from federal loans. That’s because private loans often require a cosigner, lack the same repayment flexibility and can carry much higher interest rates.

But in some cases, private student loans can make college possible if federal loans don’t completely cover your education costs. Read on to find out what to consider before you apply for a private student loan, and how to know which loans are right for you.

In this complete guide to private student loans, we’ll look at:

What is a private student loan?

When you fill out the Free Application for Federal Student Aid (FAFSA), you become eligible for grants, federal student loans and work-study. But if you can’t access enough funds to cover your college expenses, private student loans can help fill the gap.

The major difference between federal and private student loans is who lends them. The U.S. Department of Education provides federal student loans, and a student loan servicer assigned by the government collects payments when you graduate.

Private student loans are not offered by the Department of Education. Private lenders work with you to fund and manage the loans if you qualify, much the same as with other types of loans. You choose a lender, fill out an application, go through a credit check and find out if you’re approved or denied.

Here’s what you need to know about private student loans:

  • The interest rates are either fixed or variable, and they can be quite high. Private student loan interest rates can reach 14.24%, according to an April 2019 analysis by the Institute for College Access & Success.
  • Depending on your lender and repayment plan, repayment of your loans could begin immediately after they’re disbursed to you.
  • Private student loans generally don’t come with as many borrower protections as federal student loans do. They typically don’t offer income-driven repayment plans or student loan forgiveness.
  • To qualify for approval for a private loan, you will likely need a cosigner — as was the case for nearly 92% of undergraduate private student loan borrowers in the 2018-2019 academic year, according to a report by student loan data research firm MeasureOne.
  • Similar to federal student loans, private student loans are difficult to discharge through bankruptcy.

Should you apply for private student loans?

It’s best to get as much federal student aid as possible before applying for private student loans. That’s because federal student loans come with a large variety of borrower protections that private loans do not — private student loans generally don’t offer things like income-driven repayment options, subsidized interest, loan forgiveness or the ability to postpone payments.

Also, federal student loans don’t carry the double-digit interest rates that private student loans can. Unlike private loan rates, federal student loan interest rates are set by Congress. (Currently, federal student loan rates range from 4.53% to 7.08%, according to Federal Student Aid.)

If you decide to borrow from a private lender, take the steps below for the best chance at success.

Have a cosigner ready

As an undergraduate, you’ll generally need a cosigner to get approved. The first thought might be to ask a parent or other family member, though you’re not limited to those options.

Cosigner release enables you to become solely responsible for your loan after you’ve reached a certain income level and credit score, and after you’ve made a certain number of on-time payments. Check if your private student lender offers cosigner release and what the requirements are. No matter what, make sure your cosigner understands that, at least initially, he or she will be responsible for the loan if you can’t make payments.

Ask yourself these questions before you apply

Finally, if you’re thinking of taking on a private student loan, it’s important to know if you’re ready for it. Here are some questions to consider:

  • Have you done the math on the amount you’ll take out, multiplied by your student loan interest rate? Use our Student Loan Payment Calculator to help understand how much you’ll pay monthly and over time.
  • Do you know when your first payment will come due — and can you afford it if it happens to be before you graduate?
  • Are you planning on borrowing the minimum amount that you need, which is recommended, rather than adding a little extra to have a better lifestyle?

Since private loans come with more stringent repayment requirements than federal loans, it’s important to know the weight of the debt you’re considering taking on.

Where (and how) to find the right private student loan

If you’ve gotten this far and decided you’re interested in applying, then the next step is to shop around for private student loans. To make sure you’re getting the best deal possible, use the following tips.

How to shop for a private student loan

There are many places to search for and compare some of the best private student loan options, including in our private student loan marketplace. As you compare lenders:

  • Seek out the lowest interest rate possible.
  • Look for repayment terms that you’ll be able to comfortably afford when you graduate.
  • Make sure the lender offers the amount of money you’ll need to cover what other types of financial aid won’t.
  • See which lender offers bonus features, such as interest rate reductions for automatic payments and forbearance and deferment in case you encounter hard financial times. Also, look for lenders with positive customer service reviews.

What to look for as you choose a repayment plan

Private student loans come with a variety of repayment plans. Each lender calls them by a different name, but here are some options that a plan may offer.

  • Full monthly payments due right away
  • Small monthly payments while you’re in school
  • Interest-only payments while you’re in school
  • Deferred payments until you finish or leave school

You’ll also encounter a variety of repayment terms and interest rates. Plan terms can go from five years to 15 years, with either fixed or variable interest rates.

To choose a plan, evaluate what your financial situation might be during and after school. Will you work part-time while in college? Consider a plan that has you making some payments in school so you can get ahead. If you choose a variable rate over a fixed rate, make sure you’re comfortable with a possible rate increase in the future, and consider making payments while it’s still low.

When you need to apply for private student loans

When you’re ready to apply for a private student loan, you don’t need to submit a FAFSA to get approved. You can apply at any time, but wait to see how much federal aid you’ll receive first.

But, don’t wait until just before the start of school to apply. The length of time it takes to complete the application process will vary by lender. If possible, give yourself a buffer of a few weeks to a month to be sure you’ll get the funds you need in time.

How to pay off your private student loans

Once you have your private student loans, start strategizing your payoff plan. Here’s how.

If you’re in school

If you opted for a fixed payment plan or no payments while in school, you could still get ahead by making payments as soon as the loan is disbursed.

It might seem impossible to find extra money to apply to your loans while you’re in school. But this is the best time to practice saving. If you can build the habit of putting money away when you’re earning less, it’ll be that much easier to stick with it when you start to earn more.

Consider putting aside a certain amount from a part-time job, if you have one, each week. That money could go to your loans or to a savings account for repayment later if you opted to defer payments. Also, think about sending tax refunds and other extra funds toward student loans. Try using a lump sum extra payment calculator to see what that could mean for you.

If you’re having trouble finding work

Dealing with hefty student loan payments while looking for a job can be stressful. Keep an eye on your situation and contact your lender as soon as possible if you know you won’t be able to afford an upcoming payment.

Each private student loan lender offers different options for those struggling to repay. Two options are deferment and forbearance, which enable you to temporarily suspend your payments while you get back on your feet. Talk to your lender to find out exactly what they offer and what criteria you need to meet to qualify.

Private student loan default can have severe consequences, and it’s not something your lender wants, either. The sooner your communicate the difficulty you’re having, the better your chances of working out a solution with your lender.

If you’re employed and already paying down your loans

If you’re working and easily making your loan payments, consider what you can do to pay your loans down even faster if you have a high or variable interest rate.

And if you have multiple student loans, consider using the debt avalanche method, which means paying down the debt with the highest interest rate first while making the minimum payments on other loans. When that high-interest debt is paid off, apply what you were paying monthly to your loan with the next-highest interest rate. That can knock years off your debt — and potentially hundreds to thousands of dollars.

Some people prefer the debt snowball method, which targets the lowest balances first. For them, seeing a loan get paid off sooner keeps them motivated.

Life with private student loans

Private student loans can be costly to repay. But the key is managing the process early by carefully considering your options before you apply. Make sure you set yourself up for manageable debt repayment by taking out only what you need, at repayment terms you can handle.

The information in this article is accurate as of the date of publishing. 

Sarah Li Cain contributed to this report.

Need a student loan?

Check out our top picks below or learn more about other ways to pay for college.
Advertiser Disclosure

Student Loan Hero Advertiser Disclosure

Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality. 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 to help you understand what you are buying. Be sure to consult with 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.

Advertiser Disclosure

Student Loan Hero Advertiser Disclosure

Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality. 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 to help you understand what you are buying. Be sure to consult with 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.

Variable APRDegrees That QualifyMore Info
2.84% – 10.97%1 Undergraduate
Graduate

Visit College Ave

3.12% – 10.54%2 Undergraduate
Graduate

Visit SallieMae

3.37% – 11.87%3 Undergraduate
Graduate

Visit Discover

3.52% – 9.50%4 Undergraduate
Graduate

Visit CommonBond

2.90% – 11.16%5 Undergraduate
Graduate

VISIT CITIZENS