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What Is a Private Student Loan?
Private loans are offered by banks, credit unions and online lenders.
Anna Helhoski is a senior writer covering economic news and trends in consumer finance at NerdWallet. She is also an authority on student loans. She joined NerdWallet in 2014. Her work has appeared in The Associated Press, The New York Times, The Washington Post and USA Today. She previously covered local news in the New York metro area for the Daily Voice and New York state politics for The Legislative Gazette. She holds a bachelor's degree in journalism from Purchase College, State University of New York.
Des Toups Lead Assigning Editor | Student loans, repaying college debt, paying for college
Des Toups was a lead assigning editor who supported the student loans and auto loans teams. He had decades of experience in personal finance journalism, exploring everything from car insurance to bankruptcy to couponing to side hustles.
Many or all of the products featured here are from our partners who compensate us. This influences which products we write about and where and how the product appears on a page. However, this does not influence our evaluations. Our opinions are our own. Here is a list of our partners and here's how we make money.
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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.
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NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
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NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
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NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
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NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
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NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
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NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
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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.
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.
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.
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.
You must meet any income requirements and typically have a credit score in the high 600s to refinance, or a co-signer who meets these qualifications. You can opt to refinance your federal and private loans or just the private ones. But think twice before refinancing federal loans because you’ll lose all federal protections and repayment options.