Company Name |
Min. credit score |
Loan Amount |
Fixed APR |
Variable APR |
Earnest |
650 |
Up to 100% of college costs |
3.24%-13.03% (with auto pay) |
0.94%-11.69% (with auto pay) |
Sallie Mae |
Not disclosed |
$1,000 and up |
3.75%-12.85% |
1.62%-11.73% |
PenFed |
670 (with eligible co-signer) |
$7,500 to $500,000 |
5.49%-7.68% |
Not available |
College Ave. |
Not disclosed |
Up to 100% of college costs |
3.49%-12.99% |
1.19%-11.98% |
SoFi |
Not disclosed |
$1,000 and up |
3.47%-11.16% (with auto pay) |
1.89%-11.92% (with auto pay) |
Credible |
670 |
Up to 100% of college costs |
3.20%-14.52% |
1.13%-11.98% |
ELFI |
680 |
$1,000 and up |
Starting at 3.20% |
Starting at 1.30% |
MPower Financing |
Options available for no credit |
$2,001 to $100,000 |
6.49% and up (after discounts) |
Not available |
Discover |
Not disclosed |
Up to 100% of college costs |
4.49%-13.34% |
1.79%-11.24% |
Navient |
650 |
$5,001 to $500,000 |
2.44%-7.99% |
1.74%-7.99% (with auto pay) |
What is a Private Student Loan?
A private student loan is a one that comes from a lender like a bank, credit union, or finance company. Since the government doesn’t issue these loans, they’re often called “non-federal student loans.”
You typically use private student loans to pay for educational costs like tuition and fees. But, 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 you for this type of financing, a private lender will review your credit report, credit score, income details, and other credit criteria, which may vary by lender. You must 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 often are 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 show why private student loans often are a secondary funding source for college.
- Federal Benefits: Many federal student loans come with protections like in-school deferment, forbearance,income-driven repayment plans, and loan forgiveness. Private student loans may not offer these.
- Credit Requirements: Good credit is essential for getting a private student loan at an affordable rate. While lenders consider your credit history and credit score for private student loans, credit scores aren’t required with most federal student loans. If you're getting a Grad PLUS or Parent PLUS loan from the federal government, you can't have an adverse credit history.
- Borrowing Limits: Federal student loans come with annual and overall loan limits that might not cover all your educational expenses. Some private lendersoffer loans that cover up to 100% of college-related expenses.
- Repayment: Private student loan repayment varies by lender. But, sometimes, lenders require immediate repayment, meaning students or parents must start paying off the loans while students are still in school. With federal loans, you can get an in-school payment deferment. Repayment doesn’t begin for most federal loans until six months after the student leaves school or drops below half time.
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.
- You’re ineligible for federal student aid: More than 43 million borrowers have federal student loan debt, but not everyone who applies for a federal student loan qualifies. International studentsaren’t usually eligible for federal student loans. And if your GPA falls below your school’s cutoff (often around 2.0), you might not be eligible for new federal student loansr. 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, annual loan limits may mean those funds won’t cover all your educational expenses. A private student loan can help fill funding gaps, and may be used to pay for expenses like tuition and fees, books, supplies, childcare, transportation, study abroad costs, and room and board.
- You might get a lower interest rate: A private student loan is it may save you money. You have to accept whatever interest rate the federal government offers when you borrow from them. Competition between private lenders may mean you can getmore affordable student loans, especially if you have good credit.
How To Get a Private Student Loan?
The process of taking out a private student loan is 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.
- Prequalify. Some lenders may prequalify you for a private student loan with a soft credit inquiry, which does not lower your credit score.
- Apply. After you prequalify, you’ll likely need to complete the full student loan application to borrow money. The details you must share on your loan application include personal identifying information like your legal name, social security number, date of birth, credit history and other financial information school details, and your requested loan amount. You’ll need to include your cosigner’s details too, if you apply with one.
- Wait. Many lenders will respond to your application right away with an approval or denial. If you’re approved for a private student loan and you’re satisfied with the offer, you’ll need to review and accept the loan terms.Depending on the lender’s process, it may take a few days to a few weeks for your school to receive the funding.
How Do Student Loan Interest Rates Work?
Private student loan interest rates come in two varieties—fixed and variable. Here’s a 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, your interest rate could go up over time. If interest rates increase, you might pay more over the life that loan than you would with a fixed interest rate.
- Fixed interest rate: student loans APRs remain constant throughout the loan term. These loans offers predictable payments and interest. But starting APRs tend to be higher and you might miss out on potential savings if interest rates decline during your repayment term.
Pros and Cons of Private Student Loans
Before you apply for private student loans, it’s important to examine their benefits and drawbacks. Here are some pros and cons of private student loans.