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ESB Professional/Shutterstock May 31, 2022 Ben Luthi is a personal finance and travel writer who loves helping people learn how to live life more fully. His work has appeared in several publications, including U.S. News & World Report, USA Today, Yahoo! Finance and more. Chelsea has been with Bankrate since early 2020. She is invested in helping students navigate the high costs of college and breaking down the complexities of student loans. Bankrate logo The Bankrate promise
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You have money questions. Bankrate has answers. Our experts have been helping you master your money for over four decades. We continually strive to provide consumers with the expert advice and tools needed to succeed throughout life’s financial journey. Bankrate follows a strict , so you can trust that our content is honest and accurate. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions. The content created by our editorial staff is objective, factual, and not influenced by our advertisers. We’re transparent about how we are able to bring quality content, competitive rates, and useful tools to you by explaining how we make money. Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products and, services, or by you clicking on certain links posted on our site. Therefore, this compensation may impact how, where and in what order products appear within listing categories. Other factors, such as our own proprietary website rules and whether a product is offered in your area or at your self-selected credit score range can also impact how and where products appear on this site. While we strive to provide a wide range offers, Bankrate does not include information about every financial or credit product or service. Private student loans are educational loans offered by private lenders like banks, credit unions and online lenders. Unlike federal student loans, private loans typically don’t come with benefits like income-driven repayment plans and loan forgiveness options — which is why it’s best to apply for federal student loans first. But if you’ve exhausted your allotment of federal loans, private loans can come in handy, and in some cases, you could even get a lower interest rate. Should you get a private student loan
are a way to finance your education through a private lender. These lenders operate outside of the Department of Education, which offers . Students take out private student loans to help pay for tuition, fees, room and board, transportation and more. While private student loans charge interest — adding to the overall cost of an education — they’re often necessary after borrowers have exhausted scholarship, grant, work-study and federal student loan opportunities. In most cases, college students should turn to federal student loans first if they need help financing their education after free money options have been exhausted. This is primarily because federal loans give you access to income-driven repayment plans and loan forgiveness programs, but also because there’s no credit check for most loans, and everyone who qualifies gets the same interest rate. With that said, most federal loans limit how much you can borrow each year and in total, and borrowers with excellent credit could find lower interest rates with private loans. A private loan is best for: Borrowers who have exhausted their federal student loan options and still need money to cover funding gaps in their education. Those who have excellent credit or who have access to a reliable co-signer with excellent credit. Students who don’t plan to take advantage of forgiveness options, income-driven repayment plans or other federal benefits. International students who cannot qualify for federal financial aid. Private student loans vs federal student loans
Private student loans Federal student loans Standardized interest rates No Yes Fixed and variable rates Yes No Upfront loan fee Generally no Yes Requires a credit check Yes Generally no Requires a co-signer Generally yes Generally no Access to loan forgiveness programs No Yes Access to income-driven repayment plans Generally no Yes Loan limits Typically up to your total cost of attendance Varies by loan program Pros of private student loans
In the right situation, private student loans can have some clear benefits. Here are some to keep in mind. Can be cheaper than federal loans
If you’re an undergraduate student, you likely won’t find anything cheaper than a federal student loan, especially if you haven’t had the chance to build a credit history. But graduate and parent loans through the Department of Education are pricier than undergraduate loans, both with interest rates and the upfront loan fee. If you have a solid income and a high credit score, you could potentially score a lower interest rate than what the federal government charges. Also, private student lenders typically don’t charge an upfront fee. Depending on the situation, it’s good to compare what you might qualify for with private lenders and what the federal government offers. Higher borrowing limits
If you’re attending an expensive school, you may not get the amount you need if you only go through the federal government for student loans. If you’re an undergraduate student, for instance, you can borrow between $5,500 and $12,500 per year, depending on your year in school and dependent status. The lifetime maximum is $31,000 for dependent students and $57,500 for independent students. With private loans, however, you can typically borrow up to the total cost of attendance every year, giving you more flexibility to get the financing you need. Cons of private student loans
Although private loans can be beneficial in certain situations, there are also some major drawbacks that make them less appealing for most students. No access to income-driven repayment or forgiveness
Federal loans offer that reduce payments based on borrowers’ income, which is a great option for borrowers who are struggling to meet high monthly payments. Most private lenders don’t extend that same generosity; the only way to lower monthly payments is to go through the refinancing process. Also, if you work as a teacher or in some other form of public service, you may qualify to have some or all of your after you meet certain criteria. Private lenders don’t come with that option, nor would they be included in any . Interest rates are based on creditworthiness
In some cases, you can qualify for lower interest rates with private lenders than what the federal government offers. But private lenders offer a range of rates, and unless your income and credit score are stellar, you may end up with a much higher rate than you want. Of course, many private lenders allow you to apply with a , such as a parent, which can improve your chances of getting favorable terms. But even that’s no guarantee. It’s also important to note that the lowest private student loan interest rates are generally variable, which means that they fluctuate over time with market conditions. If you get a variable-rate loan, your monthly payment could increase over time. There s no federal subsidy
Undergraduate students with financial need may qualify for . With these loans, the federal government pays your interest while you’re in school, as well as during future deferment periods. With private loans, though, there is no subsidy, so you’re on the hook for all the interest that accrues on your debt. How to apply for a private student loan
If you need a private student loan to cover your college costs, here’s how to apply for one. Compare lenders. Private student loans require strong credit history from borrowers. Review each lender’s eligibility requirements to see what you’ll qualify for. Compare them based on interest rates, fees, repayment plans and relief options, if any. Get prequalified. Once you have a handful of lenders in mind, complete prequalification forms to see which ones you’d get approved for. Prequalification is a soft credit check — not a hard one — so completing these won’t ding your credit score and cause it to drop. Receiving quotes from several lenders gives you a better idea of which one is best for you. Complete an application. Once you have the right lender in mind, complete a full application. Get important documents ready, like personal and employment information, income verification, school details and tax forms. If you’re applying with a co-signer, they’ll need these documents as well. Wait for approval. Your lender might request additional information from you or your school, so appoval might not be instantaneous. Stay on alert, and if your lender needs additional forms or documents, make sure to send them in as soon as possible. Once approved, find out when repayment starts. For some lenders, that might be while you’re still in school. Others might offer deferment while students are still enrolled at least half time. SHARE: Ben Luthi is a personal finance and travel writer who loves helping people learn how to live life more fully. His work has appeared in several publications, including U.S. News & World Report, USA Today, Yahoo! Finance and more. Chelsea has been with Bankrate since early 2020. She is invested in helping students navigate the high costs of college and breaking down the complexities of student loans.