What Is a Private Student Loan?

Private student loans, like federal student loans, can be used to pay for college costs, but they come from a bank, credit union or online lender rather than the federal government.

Private student loans are best used to fill a college payment gap after maxing out federal loans. Federal loans are preferable to private loans for several reasons:

• You don’t need a credit history or a co-signer.

• The interest rate on federal loans tends to be lower.

• Federal loans offer benefits like income-driven repayment options and forgiveness opportunities.

To get a federal loan, submit the Federal Application for Federal Student Aid, or FAFSA. You don't need to complete the FAFSA to get a private loan, but you should do it anyway. The application is also the key to accessing free financial aid like grants, scholarships and work-study.

» MORE: Federal vs. private student loans: What are the drawbacks?

Who can get a private loan?

Private lenders look for borrowers who check off a few boxes:

• A strong credit score — usually in the mid-600s or better.

• A steady income that covers your monthly expenses.

If you don't meet these qualifications, you can apply with a co-signer who does.

Because of the credit requirements, many undergrad students apply a co-signer to get a private loan. There are niche private lenders that don’t consider credit scores, but those loans can carry higher interest rates.

Private graduate student loans may allow for a co-signer. Private parent loans usually won’t allow for co-signers, so borrowers need to meet credit and income requirements.

» MORE: How to apply for student loans: Federal and private

How much you can borrow in private student loans

Private student loans don’t have the same borrower limits as federal loans. With federal loans, undergraduates are limited to up to $12,500 annually and $57,500 total. Graduate students can borrow up to $20,500 annually and $138,500 total.

Private loans max out at your college’s cost of attendance, minus any financial aid. Each lender may have its own limits for the total debt you can take on. For example, Ascent limits borrowing to $200,000 over the borrower’s lifetime.

» MORE: Types of student loans: Which is best for you?

How long will you pay off a private student loan?

A private student loan repayment term varies by lender. Some offer only one 10-year repayment term, which is the standard term for federal loans. Others have terms ranging from five to 20 years.

Most private lenders let you defer payments until after you leave school. But some private lenders expect you to make small, interest-only or fixed payments while you’re enrolled. When you leave school, you usually get a six-month grace period before a bill arrives.

Your loan collects interest daily when you defer payments and during your grace period. When repayment begins, all the interest that accrued is tacked onto your loan total.

What kind of interest rate to expect with private student loans

Private loans typically have higher interest rates than federal loans. The higher your or your co-signer’s credit score and income are, the more likely you are to get a low interest rate.

It’s possible to get a private student loan interest rate that is lower than the federal rates. To do this, you’ll need excellent credit and a lender that offers rates below those offered by the federal government.

Most private lenders offer two options for interest rates: fixed and variable. A fixed rate stays the same throughout the life of the loan. A variable rate changes periodically.

Always compare private student loan offers from multiple lenders. Interest rates aren't the only thing to consider: Fees, repayment options and borrower protections are all important, too.

Current student loan interest rates

How to get a lower interest rate on private student loans

If you don’t get the best rate on a private student loan now, you can get a lower one down the road by refinancing. That means a private lender pays off your current loans and gives you a new loan with a lower interest rate and repayment term.