Federal student loans are issued and guaranteed by the government, with terms and conditions that are set by law, and include many benefits (such as fixed interest rates and income-driven repayment plans) not typically offered by private loans.
Regardless of your credit, grades or financial need, you may be eligible for federal direct unsubsidized loans or direct PLUS loans (for graduate students and parents) as well as direct subsidized loans if you show “demonstrated need” for financial aid.
But there are limits on how much you can borrow each year, ranging from $5,500 for dependent undergraduate students to $20,500 for graduate or professional students.
Private student loans, on the other hand, are funded by providers like banks, credit unions and online lenders, which charge a range of interest rates based on your credit worthiness.
Students typically turn to these lenders after they’ve reached their borrowing limit with federal loans, covering the gap between what they need for school and any federal student aid they receive.
Pros And Cons of Private Student Loans #
- Higher borrowing limit. Unlike most federal student loans, private student loans may cover to the total Cost of Attendance (COA) minus any awarded financial aid.
- In some cases, borrowers may receive a lower interest rate through a private loan lender than what is currently offered through the federal Direct Loan program.
- In addition, some private lenders offer perks, such as cash rewards for good grades, and interest rate discounts for automatic monthly payments.
- With private student loans, there is a statute of limitations when you default but may vary by state, ranging from three to 10 years.
- A credit check is required before a loan offer is made. Borrowers who don't meet the highest credit standards may pay higher interest rates.
- Most private loans require a co-signer with a solid credit rating — typically scores in the high 600s or better.
- No federal subsidy. Depending on your loan type, the government will pay your interest while you’re in school or even in repayment. When you use private student loans, that’s not an option.
- Repayment relief such as forbearance or forgiveness may not be available to borrowers who are having trouble repaying their loans.
Private Student Loan FAQ #
How do I qualify for a private student loan? #
Federal and private student loans use different eligibility criteria. Federal student loans, offered by the government, are based on your financial and family situation, as provided in your FAFSA.
Private student loans, offered by banks and financial institutions, are based on your credit profile. Your credit — and your cosigner’s credit — are evaluated, along with other information provided on your application.
I’m ready to check my score.
What are the interest rates for private student loans? #
Interest rates on private student loans are set by each lender, not the federal government. In today’s marketplace, interest rates range from around 4.00% APR (variable) to over 14.00% APR.
The rates for private student loans can be lower than federal rates, but approval for the lowest rates requires excellent credit. For example, a credit score of 770 may get you a fixed 3.39% APR with Credible.
Can I get a private student loan with bad credit? #
Not without a creditworthy co-signer.
Private student loans operate much like auto loans or mortgages where lending decisions are made based on your ability to repay. As such, you won’t find student loans designed specifically for students with poor credit.
Generally, you will need to have at least an average credit score of close to 700 (on a scale of 300 to 850). Otherwise, you’ll likely need a co-signer to qualify for a private student loan.
If you have a weak credit score, the best loan option for you is federal student loans. No matter what your score is, you will be eligible as long as you apply.
Do I need a co-signer for a private student loan? #
It’s possible to apply for a private student loan without a cosigner, but it’s not always easy. Most private lenders require a cosigner with a solid credit rating — typically scores in the high 600s or better.
Unless you’re among the few students who have a consistent income and an established credit history, you might not be able to apply on your own. Even if you can qualify for a loan on your own, applying with a cosigner may get you a lower interest rate.
Can I get my private student loans forgiven? #
No. Private student loan forgiveness programs don’t exist. Only federal loans are eligible for the government’s Public Service Loan Forgiveness (PSLF) program. However, you do have option such as student loan refinancing.
Through refinancing, you take out an entirely new loan at a potentially lower interest rate with different repayment terms, such as length of repayment, and more affordable monthly payment.
Are private student loans eligible for the 0% interest benefit? #
No. Private student loans are not covered by the COVID-19 emergency relief flexibilities. Only ED-owned federal student loans will be eligible for 0% interest.
Do I need to complete the FAFSA in order to qualify for private student loans? #
No. However, you are highly encouraged to file your FAFSA each year, to ensure that you take full advantage of any federal aid you may be eligible to receive. Even if you think you don’t qualify.
How do I apply for a private student loan? #
You can apply for private student loans directly from each lender’s website — at no cost, usually within a matter of minutes if you have the right documentation on hand.
You’ll need to fill out basic personal and financial information. You’ll also be asked to choose the interest rate type, either fixed or variable, as well as repayment option for your loan.
If you don’t have a credit history, you may apply with a cosigner during the application process. Applying for a private student loan with a creditworthy cosigner may increase your chances for approval.
Please note that the information provided above is provided on a general basis and may not be best-suited for your particular circumstances. We do not guarantee that the information provided on any third-party website that we offer a hyperlink to is up-to-date and accurate at the time you access it. Therefore, you may want to consult with an expert (financial adviser, school financial aid office, etc.) before making financial decisions.