16 Best Private Student Loans of March 2021

How do private student loans and federal student loans differ?

You apply for a federal student loan by submitting a FAFSA. Taking on a federal loan means you’re borrowing a loan funded by the government. You apply for a private student loan through a bank, credit union or online lender.

Federal student loans offer borrowers protections and alternative repayment options that private loans may not, such as income-based repayment and forgiveness programs. Federal student loans also have flat interest rates set by Congress, while the interest rate on a private student loan depends on your or your co-signer’s credit.

» MORE: How to get a student loan

What are the drawbacks to private student loans?

Compared with federal student loans, private student loans have some disadvantages:

Private student loans are harder to get. Almost all private student loans are credit-based. This means you must show a positive credit history and adequate income to qualify or have a co-signer who can assume the risk. Federal student loans for undergraduates do not require a co-signer. PLUS loans for parents and graduate students don't require excellent credit but may require a co-signer if the borrower's credit history shows an adverse event, such as bankruptcy, foreclosure or loan charge-offs.

Interest rates for private student loans are higher than interest rates for federal student loans. The current interest rate for federal student loans is 2.75%, fixed. Interest rates on private student loans for most borrowers will be significantly higher. In addition, students with financial need can qualify for subsidized student loans from the federal government. Interest does not accrue on subsidized loans while the student is in school, during the grace period or when the loan is in deferment. Interest on private student loans begins to accrue immediately and does not stop.

Private student loans have less wiggle room on repayment. Federal student loans offer a broad range of deferral and forbearance options that can temporarily pause payments and several payment plans that can reduce them. For example, federal borrowers can apply for economic hardship deferment for up to three years; 12 months is a common limit for private student loans. Federal student loans offer income-driven repayment options that can result in payments as low as $0; private lenders typically make short-term payment accommodations only.

Private student loans aren't included in the COVID-19 student loan forbearance. Because of financial stress related to the pandemic, federal borrowers have benefitted from a long-term pause on payments with no additional interest accrued. Private lenders have offered only short-term forbearance options that continue to accrue interest.

Private student loans aren't included in most forgiveness programs. Federal Public Service Loan Forgiveness and income-driven repayment plans require borrowers to make a set number of payments before forgiving the balance of the loan. Private student loans do not offer these options. Moving forward, any government forgiveness programs are unlikely to address privately held debt.

Default on private student loans has more immediate consequences. Federal student loans enter default after 270 days of nonpayment. And even after that point, federal borrowers have options to restore their good standing. Private student loans are typically in default 30 days after a payment is missed, and lenders may charge off the loan in as little as 120 days, limiting options for borrowers to get out of default.

What are the drawbacks to federal student loans?

Compared with private student loans, federal student loans have a few disadvantages:

Federal student loans have origination fees. Federal direct student loans have an origination fee of 1.057%; PLUS loans carry a fee of 4.228%. Private student loans typically do not carry these fees.

Federal student loans have borrowing limits. Undergraduates can borrow up to $12,500 annually and $57,500 total in federal student loans. Graduate students can borrow up to $20,500 annually and $138,500 total. PLUS loans and many private loans are limited only by a school's cost of attendance and have no aggregate limits.

Federal student loans may not be the best deal for PLUS borrowers. PLUS loans for parents and graduate students have a stiff origination fee of 4.228% and interest rates of 5.30%. Borrowers with stable finances and a good credit history might find a better rate, with no fees, among private lenders.

Federal debt collectors have many more options. Private student lenders rely on the court system to sue and collect a judgment, and they are limited to your state's statute of limitations in their ability to do so. Federal debt collectors can bypass the courts to directly seize tax refunds or garnish wages, and can do so indefinitely.

How do I choose a private student loan online?

Compare offers from multiple lenders including banks, credit unions, online companies and state-based lenders to find the lowest interest rate. Depending on the lender, you may be able to choose a fixed or a variable interest rate. A fixed rate stays the same throughout the life of a loan. A variable rate may start out lower than a fixed rate, but could increase or decrease over time depending on economic conditions.

Consider any borrower protections your private lender offers, including deferment and forbearance, as well as repayment options. You may also have the option to choose your loan term, which means you could pay off your loan faster and with less interest by making higher payments or pay lower amounts with more interest over a longer period of time.

How do I qualify for a private student loan?

Each lender will have its own requirements for taking out a loan. With most loans for students, credit score and income are taken into account. Higher scores and incomes tend to get the best rates or higher borrowing amounts. However, since undergraduate borrowers are less likely to have established credit or an income, lenders will usually require students to apply with a co-signer. Some lenders who have loans for borrowers without a co-signer will consider career and income potential.

Lenders will often require you to attend a Title IV school, which means your school processes federal student aid. Some lenders don't offer loans in certain states.

» MORE: Should you get tuition insurance? 

Can I get a private student loan with bad credit?

You’ll have a hard time finding a private student loan from a bank, credit union or online lender if you have bad credit. Federal student loans don’t require borrowers to demonstrate creditworthiness, so they’ll be your best option. If you’ve already hit your limit on federal loans, you may be able to get a private student loan if you apply with a co-signer who has solid credit — typically scores in the high 600s or better.

» MORE: Student loans for borrowers with bad or no credit

Will I need a co-signer for a private student loan?

If you have no income and either no credit or bad credit, you’ll need a co-signer to get a private student loan. Without bills in your name, such as a credit card, car loan or utility, you have no way to demonstrate that you can pay bills on time. Your co-signer will need to have a steady income as well as good to excellent credit scores, typically at least in the high 600s. Signing with a co-signer means they’re on the hook for your loan bill if you can’t pay.

Some lenders offer loans exclusively for student borrowers that don't take credit into consideration. Instead, these lenders look at the school you’re attending as well as your income and career potential to determine the amount you can borrow and at what rate.

» MORE: How to get a student loan without co-signer

How do I apply for a private student loan?

Each lender will have its own application requirements. You’ll usually need to provide documents that prove citizenship, identity and income along with school attendance and cost information or a financial aid award letter from your college.

As part of underwriting, you or your co-signer will need to show you have a credit score in the high 600s or higher, as well as cash flow to make loan payments. They’ll also look at your or your co-signer’s debt-to-income ratio to make sure you have the funds to pay a student loan bill in addition to any other bills in your name.

How we rate student loans

How we pick student loans to evaluate: NerdWallet reviewed 34 banks, credit unions and online lenders offering student loans and student loan refinancing. We included the top 10 lenders by market share, the top 10 lenders by online search volume and those that serve specialty or nontraditional markets. Some lenders are NerdWallet partners, but this does not influence our choice of lenders to review.

How we assign a rating: NerdWallet scores lenders that offer a private, in-school student loan product for the presence of 36 features across multiple categories. Categories are scored and weighted as follows:

• Features that enable faster repayment, such as availability of extra payments or biweekly payments via autopay - 15%.

• Disclosure of rates, fees and underwriting requirements, such as minimum credit scores and income standards - 20%.

• Availability to a wide range of borrowers, such as part-time and independent students - 20%.

• Flexible payment options, such as grace periods and forbearances available for longer than is standard - 25%.

• Customer support, such as a detailed website FAQ and in-house customer service - 20%

How we verify our data: NerdWallet writers and editors sent a comprehensive list of more than 50 questions to all lenders we reviewed. We cross-checked fees, rates, policies and other key features on each financial institution’s website. If a lender’s website was missing information, we contacted a representative directly for confirmation. At least three members of our staff verified the scores and ratings we gave to lenders.

Find the best student loan for you

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NerdWallet study: 45% of federal borrowers unsure they can handle resumed payments

Close to half of Americans with federal student loan debt of their own (45%) aren’t confident they’ll be able to make their loan payments when the automatic forbearance ends, according to a NerdWallet survey that included 273 Americans with federal student loan debt. Those borrowers were also asked how they were using the money that would otherwise go toward their loan payments. They were able to choose more than one response:

• 33% said they were using the money for necessities

• 29% said they were paying off debt

• 25% said they put money into savings

• 17% said they were investing

• 15% said they spent on non-necessities

• 10% said they spent on something else

• 19% said they were making payments as before

The NerdWallet survey included private student loan borrowers as well; 438 Americans with personal student loan debt also were surveyed about changes in their payment habits since the forbearance was launched in March 2020. They could choose more than one response:

• 25% said they were paying the same amounts on their loan(s) as before.

• 25% said they modified loan payments using an income-driven repayment plan.

• 22% said they had applied for an unemployment deferment on their loan(s)

• 22% said they had made additional payments on their loan(s) to lower overall debt

• 11% said they had refinanced private student loans

• 19% said they had made none of these changes