Advertiser Disclosure

Last update: May 29, 2024

Private Student Loans: The Complete Guide

This guide helps you choose the perfect private student loan. You'll learn about repayment strategies, consolidation options, and how to apply for a loan.


What's standing between you and your dream of higher education? For many, it's the cost. That’s where student loans come in. By the end of this guide, you'll know everything you need to know to choose your perfect student loan. Let's dive in.

    What are private student loans?

    Private student loans are offered by banks, credit unions, and other financial institutions. They can be used to supplement federal loans if additional funds are needed. Private loans typically have fewer repayment options and borrower protections than federal loans. In addition, borrowers usually need good credit or a cosigner to qualify for private student loans.

    Before you commit to a student loan, it's essential to weigh the pros and cons, like you would with any financial decision. Let's dive into the good, the bad, and the "might-make-you-think-twice" aspects of student loans.

    Benefits of student loans

    • Access to higher education

    • Investment in your future

    • Possible tax deductions

    • Helps build credit

    Drawbacks of student loans

    • Interest can add up

    • Canceling a student loan is difficult

    • Need to make monthly payments

    • Missed payments hurt your credit

    TuitionHero tip

    TuitionHero can help you find great private student loans. Our user-friendly platform lets you explore top college student loans, all with personalized rates based on your situation.

    Types of private student loans

    These loans cater to undergraduate students who need additional financial assistance beyond their federal loans, scholarships, and grants. They often require a cosigner, especially if the student has limited or no credit history.

    These loans cater to graduate and professional students who need additional financial assistance beyond their federal loans, scholarships, and grants. They often require a cosigner, especially if the student has limited or no credit history.

    These loans are designed for parents or guardians who wish to borrow for their dependent undergraduate students. Parent loans usually require the borrower to have a strong credit history, and the parent is solely responsible for repayment.

    These loans cater to international students studying in the U.S. Since international students typically don't qualify for federal loans, private loans can help cover education costs. These loans often require a U.S. citizen or permanent resident as a cosigner.

    Some private lenders offer loans tailored to students in certain fields, such as medical, dental, law, or business. These loans may have different terms, interest rates, and repayment options designed for the unique needs of those career paths.

    What can you use private student loans for?

    You can use them for various education-related expenses, including tuition, fees, and textbooks. Your loans can also be used for room and board, either on-campus or off-campus (within reason, of course).

    Beyond these basics, student loans can also be used for other necessary expenses like transportation (getting to and from class), a computer (gotta write those essays), and even some personal items (think toothpaste and laundry detergent, not designer clothes and fancy gadgets).

    Do's

    • Tuition and fees

    • Housing and utilities

    • Meals and groceries

    • A personal computer

    • Transportation to and from school

    • Study abroad program

    • School supplies

    Don'ts

    • Vacation travel

    • Clothes

    • Entertainment

    • New car

    • Investing

    • Business expenses

    • A down payment on a home

    Private student loans repayment plans

    With this plan, you'll pay the same amount every month throughout the entire life of your loan. The predictability of the fixed repayment plan can be a stress reliever for some, especially if you need to know exactly how much dough you'll be paying each month.

    This plan allows you to make payments only on the interest portion of your loan while you're still in school or during a grace period. Then, once you've graduated (or that grace period ends), you'll also start paying off the principal amount.

    With this plan, your monthly payments start low and increase over time, usually every two years. This can be a great option if you're expecting your income to rise.


    Difference between private and federal student loans?

    There are two main categories of student loans: federal and private. Let's take a look at each.

    Federal student loans

    A federal student loan is an education loan funded by the government, typically through the Department of Education.

    Features of a federal student loan

    • Fixed interest rates, often lower than private
    • Multiple forgiveness programs

    • Income-driven repayment plans

    • Subsidized loans for eligible students

    • Standard 6-month grace period

    • Direct Loan Consolidation available

    Great for students who:

    • Have limited income or credit history

    • Want a fixed interest rate that won’t go up or down

    • Need flexible repayment options

    Private Student Loans

    A private student loan is an education loan funded by a private lender, such as a bank, credit union, or online lender.

    Features of a private student loan

    • Fixed or variable interest rates, often higher than federal
    • Limited forgiveness options

    • Fewer flexible repayment options

    • Generally not subsidized

    • Grace period varies by lender

    • Private consolidation/refinancing

    Great for students who:

    • Have a cosigner or good credit score

    • Want the ability to apply at anytime

    • Need more funding than federal loans can provide

    TuitionHero tip

    Remember to borrow wisely and always explore federal loans, grants, scholarships, and work-study options before taking out a private student loan. Our user-friendly platform lets you explore and compare college financing options personalized to your unique situation.


    TuitionHero’s best student loan offers for May 2024

    This month, we have a variety of student loan options. We've partnered with top lenders to help make your goals for higher education a reality!

    College Ave

    College Ave

    Apply Now

    On lenders secure website

    VARIABLE APR

    5.59% - 16.65%¹

    FIXED APR

    4.11% - 15.44%¹
    Sallie Mae

    Sallie Mae

    Apply Now

    On lenders secure website

    VARIABLE APR

    6.37% - 16.70%¹

    FIXED APR

    4.50% - 15.49%¹
    Earnest

    Earnest

    Apply Now

    On lenders secure website

    VARIABLE APR

    5.62% - 16.20%

    FIXED APR

    4.42% - 15.90%

    What to consider before applying for a student loan?

    There are several factors you should consider when applying for a student loan. Let's break it down so you can make an informed decision about your financial future.

    1. Eligibility requirements

    Eligibility criteria can vary by lender and loan type, but often include areas such as citizenship status, school enrollment status, and financial need.

    Some loans may also require a cosigner, someone who agrees to repay the loan if you don’t make payments, if you don't meet their minimum credit score or income requirements by yourself.

    1. Be a U.S. citizen, national, eligible non-citizen, or international with a U.S. cosigner.
    2. Be enrolled or accepted as a regular student
    3. Meet credit and income requirements (or have a creditworthy cosigner).
    4. Maintain satisfactory academic progress while in school

    2. Interest rates

    Interest rates are the cost of borrowing money, expressed as a percentage of the principal loan amount. They come in two flavors: fixed and variable.

    Fixed interest rates are predictable, as they stay the same throughout the life of the loan. Federal student loans only come with fixed rates. These rates can change for new loans each year, but your rate remains the same once you take out a loan.

    Variable interest rates can change over time based on market conditions. Private student loans can have either fixed or variable interest rates, which are determined by the lender. These rates are often based on your creditworthiness, term length, and repayment options.

    3. Origination Fees

    Origination fees are charges owed to lenders for processing your loan application. These origination fees are usually a percentage of the total loan amount, typically between 0.5% - 2% of your loan. This percentage can vary based on the lender, type of loan, and borrower's creditworthiness.

    4. Repayment terms

    Some loans require immediate repayment, while others offer a “grace period” that allows you to wait until after graduating to start making payments. A grace period can be extremely helpful because it gives you time to find a steady job and figure out your finances before beginning repayment. If you can afford to have a shorter repayment term, you will have to make larger monthly payments, but you will owe less interest by paying off your loan quicker.

    5. Cost of the loan

    It's essential to calculate the total cost of the loan before deciding to take it on. This includes not just the principal amount, but also the interest, origination fees, or any additional charges. Take a look at the annual percentage rate (APR) to get an idea of the total cost of the loan for a year, including interest and fees. Keep in mind that you may be able to reduce your loan costs by making extra payments or paying off the loan early.

    6. Monthly payments

    After calculating your total loan cost, you need to understand your monthly payments. Your monthly payments will be determined by several factors including your total loan amount, your loan term (the length of time you have to repay the loan), and the interest rate. Also, whether the interest rate is fixed or variable will determine if your payments can change over time.

    A longer term generally means smaller monthly payments, but you'll end up paying more in interest over the life of the loan. A shorter term means higher monthly payments, but less interest paid overall.

    7. Cosigner

    You'll want to check if your lender requires a cosigner, and if they offer a cosigner release option. A cosigner release option allows you to remove your cosigner from the loan after you meet specific requirements, such as making consistent on-time payments for an extended period of time.

    8. Lenders reputation

    Don't forget to research the lender's reputation and track record for customer service and support. Read reviews, ask for recommendations, and check with the Better Business Bureau to ensure that the lender is trustworthy and reliable.

    TuitionHero tip

    Our detailed lender reviews make it fast and easy to find private student loan lenders that you can trust.

    9. Forgiveness and deferment

    Borrowers may have access to programs and policies that allow them to defer loan payments or even cancel them altogether. You'll want to look into if the loan you're considering has a cancellation, deferment, or forbearance clause.

    Student loan cancellation means the borrowers will no longer have to make any more loan payments and their remaining loan balance is forgiven. Students can also postpone their payments under certain conditions. Let's explore when your loans may be eligible for cancellation:

    • Public Service Loan Forgiveness (PSLF): Government or non-profit workers may have remaining balance forgiven after 120 qualifying payments.

    • Disability Discharge: Loans may be forgiven for those with total and permanent disabilities.

    • Perkins Loan Cancellation: Loans may be forgiven if the borrower works in certain public service jobs or professions, such as teaching, nursing, law enforcement, or the military.

    • Closed School Discharge: Loans may be forgiven if your school closes before you graduate.

    Deferment is like hitting the snooze button on your student loan payments. If you're going through a temporary rough patch, deferment allows you to postpone your loan payments. Here are some situations that might qualify you for deferment:

    • Unemployment: Job hunting can be as tough as finding a needle in a haystack, so if you're actively seeking employment, you may be eligible for deferment.

    • Economic hardship: If you're experiencing financial difficulties, deferment can give you some breathing room.

    • Military service: If you're serving your country, your student loans can take a back seat while you're on active duty.

    Forbearance is like asking your student loans to "chill out" for a bit. It's another way to temporarily postpone your loan payments when facing financial challenges. Unlike deferment, forbearance is often granted at the discretion of your lender, and interest will continue to accrue on your loan during this period. Common reasons for forbearance include:

    • Medical expenses: If you're dealing with hefty medical bills, your lender might grant you forbearance.

    • Change in employment: If you lose your job or experience a reduction in income, forbearance can offer temporary relief.

    • Other financial difficulties: Unexpected expenses, like a car repair, can make it tough to keep up with loan payments.

    10. The fine print

    Be sure to review the terms of your student loan, and make sure you're comfortable with the loan's terms before committing to it. When you read the fine print, make sure you ask yourself:

    1. Are there penalties for paying your loan off early?

    2. How much are late payment fees?

    3. Are there any loan forgiveness programs?

    4. Are there other additional fees or penalties?

    How to get a private student loan

    Here's a step-by-step guide to help you navigate the application process and secure the funding you need for your education.

    1. 1

      Research and compare lenders

      Start by researching and comparing different lenders, including both private and federal options. Take note of their interest rates, fees, repayment options, and other features. This will help you find the best loan for your unique financial situation and education goals.

    2. 2

      Gather necessary information

      Before you apply, gather essential details and documents such as your Social Security number, proof of income, tax returns, and specifics about your school and program. If pursuing federal loans, complete the Free Application for Federal Student Aid (FAFSA). For private student loans, apply via your chosen lender.

    3. 3

      Wait for loan approval

      After submitting your application, you'll need to wait for the lender to review and approve it. This can take anywhere from a few days to a few weeks, depending on the lender and the type of loan. Be patient and stay in contact with your lender to ensure they have all the information they need to process your application.

    4. 4

      Review and sign

      Once your loan is approved, carefully review the terms and conditions, including the interest rate, fees, and repayment options. This includes the repayment schedule, interest rates, penalties for late or missed payments, and any other relevant terms. Make sure you're fully aware of your responsibilities as a borrower before accepting the loan.

    Ready to get started?

    Let's match you with your perfect private student loan.

    It’s 100% free

    Frequently Asked Questions

    We've got answers to just about any question you can think of.

    Nope! Student loans don't automatically destroy credit. In fact, they can help you build credit if you make your payments on time and consistently. However, missing payments or defaulting on your loan can negatively impact your credit score. So, staying on top of your repayment game is key!

    Not exactly. When you take out a student loan, the funds are usually sent directly to your school to cover tuition and other fees. Any leftover money can then be disbursed to you for living expenses, textbooks, and more. So, while you don't get a big check upfront, the loan helps you cover your education costs.

    Student loans and scholarships are like apples and oranges. Student loans are borrowed money that you have to pay back with interest. On the other hand, scholarships are free money awarded based on merit or need, and you don't have to pay them back! So, grab those scholarships when you can!

    To determine how much to borrow, start by estimating your total education costs, including tuition, fees, housing, textbooks, and other expenses. Then, subtract any scholarships, grants, or other financial aid you've received. The remaining amount is what you'll need to cover with student loans. Remember, only borrow what you need!

    Yes, there are some rules to follow. Student loan funds are meant for education-related expenses like tuition, fees, books, supplies, and living expenses. You shouldn't use them for non-education expenses like vacations or shopping sprees!

    There sure are! On the bright side, you can deduct up to $2,500 in student loan interest on your taxes, which may lower your taxable income. But if your loans are forgiven, the amount forgiven may be considered taxable income. Always consult a tax professional to ensure you're making the most of your tax situation.

    Transferring the ownership of a student loan to someone else is generally not possible, as the loan is a legally binding agreement between you and the lender. However, some lenders may allow you to add or remove a cosigner, which can impact the responsibility for repayment. Be sure to review your loan terms and contact your lender for more information.

    To find out if you qualify for a loan deferment, check your loan servicer's website or give them a call. Deferment options depend on the type of loan and your personal circumstances, like going back to school, unemployment, or economic hardship. If you qualify, you may be able to pause your loan payments temporarily without penalty. Just keep in mind that interest might still accrue during the deferment, depending on the type of loan you have.

    Absolutely! While non-US citizens might not be eligible for federal student loans, you can still explore private student loans. Some lenders offer loans specifically for international students studying in the US. Just remember, you might need a creditworthy US citizen or permanent resident as a cosigner to secure the loan.

    The amount you can borrow depends on the type of loan and your education level. For federal student loans, there are annual and aggregate limits. For example, dependent undergraduate students can borrow up to $31,000 in total, while independent undergrads can borrow up to $57,500. Graduate students can borrow up to $138,500. Private student loans often have higher limits, but remember to only borrow what you need!

    Getting a student loan involves a few key steps: Fill out the FAFSA (Free Application for Federal Student Aid) for federal loans, research and compare lenders for private loans, gather necessary information, submit your application, and wait for approval. Once approved, review the loan terms, sign the agreement, and receive the funds. Remember, it's crucial to explore all your options and choose the one that best suits your needs.

    When you pass away, the fate of your student loan debt depends on the type of loan. Federal student loans are discharged upon the borrower's death, meaning they're forgiven. For private student loans, it depends on the lender's policies – some may forgive the debt, while others might try to collect from your estate or your cosigner if you have one.

    Yes, you can! While you may need your parents' financial information for the FAFSA, federal student loans don't require a cosigner. For private student loans, though, you might need a cosigner with good credit if you don't meet the lender's requirements on your own.

    The average time to pay off student loans varies depending on factors like the loan amount, interest rate, and repayment plan. For federal loans, standard repayment plans are typically 10 years. However, extended and income-driven repayment plans can last up to 25 years. For private loans, repayment terms can range from 5 to 20 years.

    To choose the right lender, compare interest rates, repayment options, customer service, and any additional benefits they offer. Look for reviews and ask for recommendations from friends, family, or financial aid advisors. Don't forget to consider federal loans, as they often come with more flexible repayment options and borrower protections.

    To check your application status, log in to your lender's website or contact their customer service. For federal loans, check your FAFSA status online or contact your school's financial aid office. Remember, it's essential to be proactive and follow up on your application to ensure a smooth process.

    To pay less interest on your student loans, consider making extra payments, paying off higher-interest loans first, or refinancing to a lower interest rate. Remember, the faster you pay off your loans, the less interest you'll end up paying over time.

    You can check your federal student loan balance through the National Student Loan Data System (NSLDS) website. You can log in to your lender's website or contact their customer service for private student loans. Staying informed about your balance can help you manage your repayment strategy effectively.

    To calculate your monthly payments, use an online student loan payment calculator, which considers your loan balance, interest rate, and repayment term. This helps you estimate your monthly payments and plan your budget accordingly.

    Submit student loan payments through your lender's website, mail, or by phone. Some lenders also offer auto-debit options that automatically withdraw your payment from your bank account each month. Make sure to pay on time to avoid late fees and maintain a good credit history.

    Yes, you can change your repayment plan for federal student loans by contacting your loan servicer. Private student loan repayment plans depend on the lender, so reach out to their customer service to explore your options. Remember, switching plans might affect your interest and overall repayment terms.

    You can consolidate federal student loans through a Direct Consolidation Loan, which combines multiple loans into one loan with a single monthly payment. Private student loans cannot be consolidated through this process, but you can consider refinancing them with a private lender. Keep in mind that consolidation might affect your interest rate and repayment options.

    Repayment terms vary depending on the type of loan and repayment plan you choose. Federal student loan repayment terms range from 10 to 25 years, while private loan terms typically range from 5 to 20 years. Be sure to understand your specific loan terms and choose a repayment plan that best fits your financial situation.

    For federal student loans, there are several income-driven repayment plans: Pay As You Earn (PAYE), Saving on A Valuable Education (SAVE), Income-Based Repayment (IBR), and Income-Contingent Repayment (ICR). These plans base your monthly payments on your income and family size, and can offer loan forgiveness after 20 to 25 years of qualifying payments. Evaluate your financial needs to determine if an income-driven repayment plan is the right choice for you.

    Yes, there are several loan forgiveness programs for federal student loans, including Public Service Loan Forgiveness (PSLF), Teacher Loan Forgiveness, and income-driven repayment forgiveness. These programs can forgive the remaining balance on your loans after meeting specific requirements, such as working in a qualifying public service job or making a certain number of qualifying payments. Make sure to review each program's criteria to determine your eligibility.

    In the unfortunate event of a borrower's death, federal student loans can be discharged, meaning the debt is canceled. Some private lenders also offer death discharge, but policies vary, so it's essential to review the terms of your specific loan. A death certificate is typically required as proof to discharge the debt.

    Defaulting on student loans can have serious consequences, such as damage to your credit score, wage garnishment, and loss of eligibility for deferment or forbearance. For federal loans, default occurs after 270 days of missed payments. For private loans, default timelines vary by lender. If you're struggling with payments, contact your loan servicer or lender to discuss your options before defaulting.

    Yes, federal student loans can be discharged if you become totally and permanently disabled. You must provide documentation, such as a physician's certification or proof of disability benefits, to qualify for discharge. Some private lenders also offer disability discharge, but terms vary. Make sure to review your loan agreement and contact your lender for more information.

    Discharging student loans in bankruptcy is challenging but possible. You must prove that repaying your loans would cause "undue hardship," which typically requires meeting strict legal standards. Consult with a bankruptcy attorney to determine if pursuing student loan discharge in bankruptcy is the right choice for you.

    Student loans cannot be discharged simply because you return to school. However, you may qualify for deferment or in-school forbearance, which allows you to temporarily pause payments while enrolled at least half-time. Contact your loan servicer or lender to discuss your options for managing payments while in school.

    If you can't make your student loan payments, consider contacting your loan servicer or lender as soon as possible to discuss options such as deferment, forbearance, or changing your repayment plan. Taking action early can help you avoid late fees, damage to your credit score, and the risk of default.

    Conclusion

    As you embark on your educational journey, navigating the maze of student loans might seem like a daunting task. But with the right information, you can tackle those loans like a pro! We hope this guide has helped you understand the ins and outs of student loans, so you can make informed decisions and confidently invest in your future.

    TuitionHero was designed to be your go-to resource for comparing financial aid options and choosing the best student loan that suits your needs. We're here to support you every step of the way. And remember, when it comes to your education and future, you're the ultimate hero!

    Key takeaways

    • Student loans help students pay for school and education-related expenses
    • Loans can be obtained from federal or private sources
    • Federal loans generally offer more favorable terms and lower interest rates
    • Private loans are provided by banks and other financial institutions.
    • Consider the total cost of the loan, including interest, fees, and other charges.
    • Review the loan terms, including penalties for early repayment and any potential loan forgiveness programs.

    Author

    Brian Flaherty avatar

    Brian is a graduate of the University of Virginia where he earned a B.A. in Economics. After graduation, Brian spent four years working working at a wealth management firm advising high-net-worth investors and institutions. During his time there, he passed the rigorous Series 65 exam and rose to a high-level strategy position.

    Editor

    Yerain Abreu avatar

    Yerain Abreu is a Content Strategist with over 7 years of experience. He earned a Master's degree in digital marketing from Zicklin School of Business. He focuses on college finance, a niche carved out of his journey through the complexities of academic finance. These firsthand experiences provide him with a unique perspective, enabling him to create content that's informative and relatable to students and their families grappling with the intricacies of college financing.

    At TuitionHero, we're not just passionate about our work - we take immense pride in it. Our dedicated team of writers diligently follows strict editorial standards, ensuring that every piece of content we publish is accurate, current, and highly valuable. We don't just strive for quality; we aim for excellence.


    Shop and compare private student loans — 100% free!

    Always free, always fast

    TuitionHero is 100% free to use. Here, you can instantly view and compare multiple top lenders side-by-side.

    Won't affect credit score

    Don't worry - checking your rates with TuitionHero never impacts your credit score!

    Safe and secure

    We take your information's security seriously. We apply industry best practices to ensure your data is safe.

    Finished scrolling? Start saving & find your private student loan rate today

    Compare Personalized Rates
    It’s 100% free
    Won’t affect credit score
    Compare rates from multiple lenders