What is a private student loan?

Private student loans originate with a bank, credit union or online lender — unlike federal student loans that are handled by the federal government.

You can use both federal and private loans to pay for school, but federal loans typically have more favorable terms, including lower interest rates, flexible repayment options and loan forgiveness. For those reasons, it’s best to prioritize federal student loans before private loans.

Private student loans can be a good option if:

• You have already completed the Free Application for Federal Student Aid, or FAFSA, to see if you’re eligible for federal grants and work-study programs.

• You have already borrowed the maximum in both subsidized and unsubsidized federal student loans.

• You or a co-signer have good credit (a credit score of 690 or above). Many private student loan borrowers apply with a co-signer to improve their chances of qualifying.

• You borrow only what you need and expect you can repay.

Student Loan Terms to Know

• Deferment: A period of authorized nonpayment that pauses student loan payments for up to three years. Deferment can be a good option if you have a federal subsidized and can’t afford to make payments now, but will be able to soon. If you need a longer-term fix, consider income-driven repayment instead.

• Delinquent: The status of a student loan after one or more missed payment. Loans enter default after a prolonged period of delinquency. While you will probably face late fees, you can avoid credit damage and default by quickly paying the past-due amount.

• Disbursement: The process of releasing loan funds to the borrower or directly to the school.

• Fixed interest: An interest rate that does not change during the life of a loan. All federal student loans have fixed interest rates, but private loans can offer fixed or variable interest rates. Fixed interest is the safer option because you don’t have to worry about your rate — and payment — increasing.

• Variable interest: Variable interest rates can change monthly or quarterly depending on the loan contract and come with rates caps as high as 25%. Variable interest loans are riskier than fixed interest loans but can save you money if the timing is right.

• Origination fee: The fee a borrower pays to offset a lender’s cost for issuing a student loan. All federal student loans have origination fees, while many private student loans don’t. Origination fees typically have a minimal effect on undergraduates with lower loan amounts, but can be costly for graduates and those with higher loan totals.

• Prepayment: Prepayment is when you pay off part or all of your loan before the scheduled due dates.

How much can I borrow for college?

Only borrow what you need and can expect to pay back. Start with federal loans, and take private loans if you need additional funds to pay for college.

The maximum in federal student loans you can borrow depends on your year in school, whether you’re a dependent or independent student and the type of loan. With private loans, the amount you borrow can’t exceed your school’s total cost of attendance, less other financial aid.

How do I choose a private student loan online?

• Compare loan offers: Check options from multiple lenders including banks, credit unions, online companies and state-based lenders to find the lowest interest rate.

• Decide on fixed or variable 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.

• Choose a loan term: You may also have the option to choose your loan term. A short term gives you higher monthly payments, but also faster repayment and less total interest. A longer term allows you to pay less each month, but more interest over a longer period of time.

• Consider borrower protections: A private lender may offer deferment, forbearance or another temporary repayment adjustment if you can’t afford your payments.

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

If you have no income and 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, it's hard to demonstrate that you can pay bills on time. Your co-signer will need a steady income and good credit scores. A co-signer is responsible for repaying the loan if you fail to make payments.

Some private lenders will let students apply without a co-signer. Instead of basing your loan offer on your credit, they look at your academic performance and earning potential to determine your ability to pay back the debt.

Paying for your child's education as a parent

Helping your child afford college or graduate school is one of the most meaningful financial decisions you'll make. Understanding your borrowing options upfront helps you support their goals while protecting your own financial wellbeing.

Most parents combine several funding sources: savings, 529 plans, scholarships, federal student loans in your child's name, and when there's still a gap, parent loans. Parent loans come in two flavors: federal Parent PLUS loans and private parent loans. Each has trade-offs, and the right choice depends on your credit, your income, and your long-term financial picture.

How federal Parent PLUS loans work

Parent PLUS is a federal loan program available to biological or adoptive parents of dependent undergraduate students.

Current terms (2025–2026 academic year):

• Fixed interest rate of 8.94% — the highest among federal loan types

• Origination fee of about 4.228%, deducted upfront from each disbursement

• No credit score minimum, but parents with adverse credit history may need an endorser or documentation of extenuating circumstances

• Currently no aggregate borrowing cap — parents can borrow up to the full cost of attendance minus other aid

Parent PLUS loans offer in-school deferment while your child is enrolled at least half-time, plus a six-month grace period after graduation. They also come with federal protections that private loans don't offer, including death and disability discharge.

What's changing with Parent PLUS in July 2026

The One Big Beautiful Bill Act (OBBBA) introduces meaningful changes to Parent PLUS loans starting July 1, 2026. Here's what parents should know:

• New annual cap: $20,000 per dependent student

• New lifetime cap: $65,000 per dependent student

• New Parent PLUS loans will not qualify for income-driven repayment (IDR) plans, they'll be locked into standard repayment only

• New Parent PLUS loans will lose Public Service Loan Forgiveness (PSLF) eligibility

If you already have Parent PLUS loans disbursed before July 1, 2026, you can continue borrowing under the current rules for up to three more academic years or until your child finishes their current program, whichever comes first.

An important planning note for current Parent PLUS borrowers: if you already have Parent PLUS loans and want to preserve access to IDR or PSLF, you'll generally need to consolidate before July 1, 2026 and enroll in a qualifying repayment plan. Taking out a new Parent PLUS loan after that date could affect IDR eligibility on your existing loans. This is a good situation to talk through with a financial aid office or student loan advisor.

When a private parent loan can be a good fit

Private parent loans are offered by banks, credit unions, and online lenders, and they've become an increasingly popular option for families, especially given Parent PLUS's high interest rate and origination fee.

A private parent loan may be worth considering if:

• You have strong credit and can qualify for a rate meaningfully lower than the 8.94% Parent PLUS rate

• You want to avoid origination fees, which the private lenders listed above don't charge

• You're hitting the new $65,000 Parent PLUS lifetime cap and need additional funding

• You want more flexibility on repayment terms, with options ranging from 5 to 20 years depending on the lender

For parents with excellent credit, private loans can sometimes save thousands of dollars in interest and fees over the life of the loan. That said, private loans don't offer the same federal protections, no income-driven repayment, no PSLF, and discharge policies for death or disability vary by lender.

Choosing between co-signing and borrowing in your own name

If you decide to use a private loan to help fund your child's education, you have two main paths:

Co-signing a private student loan in your child's name:

• The loan is in your child's name; you're the backup if they can't pay

• The debt appears on your child's credit, which helps them build credit history

• Many lenders offer co-signer release after a set period of on-time payments (typically 12 to 48 months) letting you exit the loan entirely

• Your child is the primary borrower and may qualify for lender benefits like in-school deferment or graduation rate discounts

Taking out a private parent loan in your own name:

• The loan is solely your responsibility, and your child has no legal obligation to repay

• The debt is on your credit, not your child's

• You may qualify for a better rate based on your established credit and income

• Useful if you want to keep your child's borrowing low or if they don't yet have the credit to qualify for competitive rates

There's no universally "right" answer — it depends on your credit, your child's credit, your tax situation, and how you want to handle the conversation about repayment within your family.

Shopping smart for parent loans

Whether you're comparing Parent PLUS to private options, or comparing private lenders to each other, a few hours of research can save thousands.

A few things worth doing: