Best Private Student Loans

Best Private Student Loans for 2022 - Full Overview

Below is our list of the top 10 private student loan lenders for 2022.

Best Private Student Loans - Feature Comparison

What is a Private Student Loan?

A private student loan is a student loan that comes from a lender like a bank, credit union, or other financial company. Because these loans are not issued by the government, they are often called non-federal student loans.

You can use a private student loan to pay for educational costs like tuition and fees. The more flexible private lenders may let you borrow funds for other college expenses like textbooks, room and board, and even childcare.

How Do Private Student Loans Work?

Private student loans are a tool that undergraduate students, graduate students, and parents can use to help cover the cost of educational expenses. To qualify for this type of financing, a private lender will likely review your credit report, credit score, income details, and more. You’ll need to satisfy a lender’s minimum approval requirements in each category to qualify.

Students are often unable to qualify for private student loans on their own due to lack of credit or income limitations. The Consumer Financial Protection Bureau reports that 90% of new private student loans require a cosigner, and parents or grandparents are often the ones who often fill this need.

Private Student Loan vs. Federal Student Loan: What’s The Difference?

Most people rely on federal student loans first to finance college-related costs. The differences below between federal and private student loans provide insight into why private student loans are often a secondary source of funding for college.

• Federal Benefits: Many federal student loans come with rich perks such as income-driven repayment plans, loan forgiveness opportunities, etc. Private student loans may not share these same benefits.
• Credit Requirements: Good credit is typically essential if you want to borrow money at an affordable price. But while your credit report and score can certainly influence your ability to qualify for a private student loan, credit checks aren’t required with most federal student loans.
• Borrowing Limits: Federal student loans come with annual and overall loan limits that might not cover the full cost of your educational expenses. Some private lenders, however, offer loans that cover up to 100% of college-related expenses.

Reasons to Get a Private Student Loan

Although most student loan borrowers start with federal student loans, there are several reasons you might want to consider a private student loan too.

• You’re ineligible for federal student aid. More than 43 million borrowers have federal student loan debt. But that doesn’t mean everyone who applies for a federal student loan will qualify. International students, for example, aren’t usually eligible for federal student loans. And if your GPA falls below your school’s cutoff point (often around 2.0), you might not be eligible for new federal student loans the following semester. A private student loan could help you finance college costs in situations where federal student aid isn’t available.
• Fill funding gaps. Even if you are eligible for federal student loans, those funds might not be enough to take care of all your educational expenses due to loan limits. A private student loan can help you fill gaps in funding, and may be used to pay for expenses such as tuition and fees, books, supplies, childcare, transportation, study abroad costs, room and board, and more.
• You might get a lower interest rate. Another reason to consider a private student loan is the potential to save money. With federal student loans, you have to accept whatever interest rate the federal government offers. Private lenders compete with each other for business, and you might be able to qualify for more affordable financing as a result—especially if you have good credit.

Types of Private Student Loans

How To Get a Private Student Loan?

The process of taking out a private student loan looks a bit different from lender to lender. Below are some general steps you may need to take to apply for, qualify for, and receive this type of financing.

1. Prequalify. Some lenders may let you see if you prequalify for a private student loan and check your interest rate with a soft credit inquiry. (Note: Soft credit inquiries do not damage your credit score.)
2. Apply. After you prequalify, you’ll likely need to fill out an official student loan application to borrow money from a private lender. Some of the details you may need to share on your loan application include personal identifying information (i.e., name, Social Security number, date of birth, etc.), school information, and your requested loan amount. You’ll need to include your cosigner’s details too, if applicable.
3. Wait. Many lenders will respond to your application right away to let you know whether you’re approved or denied. If you qualify for a private student loan, you’ll need to review the loan terms and accept the offer (assuming you’re satisfied with it). From there, it may take a few days to a few weeks for your school to receive the funding, depending on the lender’s process.

How Do Student Loan Interest Rates Work?

Private student loan interest rates come in two varieties—fixed and variable. Here’s an basic overview of each type of interest rate.

• Variable interest rate student loans often feature lower starting APRs than fixed-rate loans. For example, variable-rate loans might start at 1.30% APR and fixed-rate loans might begin at 3.20%. But with variable loans there’s a risk that your interest rate could go up over time. If interest rates increase (as they have been recently), you might wind up paying more over the life of a variable-rate loan than you would with a fixed interest rate.
• Fixed interest rate student loans feature APRs that remain constant throughout the loan term. This type of loan offers predictable payments and interest. But starting APRs do tend to be higher and you might miss out on a potential savings opportunity if interest rates hold steady or decline throughout your repayment term.

Pros and Cons of Private Student Loans

Before you apply for any type of financing—private student loans included—it’s important to examine its benefits and drawbacks. Here are some pros and cons of private student loans you’ll want to consider.

Conclusion

Private student loans aren’t the first funding choice for many students. Yet these types of loans could still play an important role in your college journey, depending on your situation.

If you need supplemental funding for graduate or undergraduate school, or if you’re a parent that wants to borrow money to pay for your child’s educational expenses, a private student loan might benefit you. And the loans might benefit those who want to refinance existing loans to a lower interest rate too.