When your child applies for financial aid through the Free Application for Federal Student Aid (FAFSA), they may experience a gap between the cost of the school and the financial aid they actually receive. A private student loan, which may come from an online lender, credit union, bank or other lender, may help cover the gaps that financial aid doesn’t cover.
We reviewed the best private student loans based on research on interest rates, repayment terms, other benefits and more. We’ll also go over the basics of private student loans, including how they work, the pros and cons between private and federal student loans, how students can maximize both federal and private student loans and more.
- Best Private Student Loan Lenders
- How Do Private Student Loans Work?
- Federal vs. Private Student Loans
- Pros of Federal Student Loans
- Cons of Federal Student Loans
- Pros of Private Student Loans
- Cons of Private Student Loans
- How Are Private Student Loan Interest Rates Determined?
- How Can Students Maximize Both Federal and Private Loans?
- Is a Private Student Loan a Good Option?
- How to Find the Right Private Student Loan
- Step 1: Put together a lender list.
- Step 2: Check the loan terms.
- Step 3: Get quotes and compare offers.
- Step 4: Choose a lender.
- Can My Child Get a Private Student Loan without a Cosigner?
- How to Get Private Student Loans with Bad Credit
- What are the eligibility requirements for a private student loan?
- How do you find the best private student loan?
- Do private student loans have fees?
Best Private Student Loan Lenders
We compared dozens of private loan providers and chose the top five to feature here. According to our research, the best private student loans for students include:
Minimum credit score
APR (both fixed and variable)
4.49% – 14.75%
4.50% – 15.33%
4.49% – 13.95%
How Do Private Student Loans Work?
Private student loans differ from federal student loans because they do not come from the government. Your child’s school may also be a direct loan institution, which means that the school may offer loans directly to borrowers. Ask your child’s school if it offers loans directly.
You can submit applications through lender websites and must include the following:
- Information about your child’s degree or program
- The school your child plans to attend
- The amount of money you need to borrow (your child must have qualified higher education expenses at an eligible institution)
- Personal and financial information
- Cosigner information, if applicable
Your child may have to be the age of majority in your state of residence (if not, your child may need a cosigner) and be a U.S. citizen, permanent resident or non-permanent resident alien. Your child may also have to be enrolled at least half time in a degree-granting program.
Your child can borrow up to their school’s cost of attendance in private loans, minus other financial aid earned. Individual lenders may have limits for the amount of money your child can borrow.
Your child will face limits on federal student loan amounts. For example, dependent students may not qualify for more than $5,500 in their first year and no more than $3,500 of this amount may be in subsidized loans. Dependent undergraduate students run into an aggregate loan limit of $31,000; your child cannot get more than $23,000 of this amount in subsidized loans.
In contrast, the application process differs for private student loans versus federal student loans. You or your student must file the Free Application for Federal Student Aid (FAFSA) to qualify for federal student loans. Federal student loans come from the U.S. Department of Education through the William D. Ford Federal Direct Loan (Direct Loan) Program. Direct loans include Direct Subsidized loans, Direct Unsubsidized loans and Direct PLUS loans:
- Direct Subsidized loans: Undergraduate students who demonstrate financial need may receive the Direct Subsidized Loan to help pay for college or career school. The federal government pays the interest on Direct Subsidized loans while you’re in school.
- Direct Unsubsidized loans: Graduate and undergraduate students can tap into unsubsidized loans, which means that the government does not take care of the interest while you’re in school.
- Direct PLUS loans: Parents of undergraduate students can help pay for cosmetology students’ education with a Direct PLUS loan. Parents will have to undergo a credit check.
Private student lenders may require you to make payments while you are still in school and can have variable or fixed interest rates. Federal interest rates are always fixed. This means that federal student loans may be more predictable when your child repays them.
Federal student loans typically carry lower interest rates than private student loans and private loans also cause you to lose out on income-driven repayment plans and other perks such as public service loan forgiveness, which means you do not have to pay your student loans after a certain period of time.
Federal vs. Private Student Loans
One of the best ways to compare federal and private student loans involves looking at the pros and cons of both. So, what are the pros and cons of federal vs. private student loans? Let’s take a quick look.
Pros of Federal Student Loans
Let’s take a quick look at a few benefits of federal student loans first.
- Fixed interest rates: Federal student loans offer fixed interest rates. This means that when your child repays their loans, they know what interest rate to expect. Fixed interest rates never change, while variable interest rates change.
- Payments not due while in school: Federal student loan repayment doesn’t begin until after you graduate, leave school or enroll in school below half-time.
- Lower interest rates: Your student will typically pay lower interest rates for federal student loans compared to private student loans. However, it’s a good idea to compare several options to check on the costs.
- Subsidized options: You can qualify for subsidized federal student loans, which means that the government will pay the interest while your child attends school.
- Tax deductible interest: Interest may be tax deductible on a federal student loan.
- Repayment plans: You may choose from several repayment plans for federal student loans, including income-driven repayment plans. Also note that if your child decides to pay off a student loan early, they won’t pay a prepayment penalty.
- Loan forgiveness and consolidation: Your child will have many federal loan perks, including forgiveness (in which they may not have to pay back loans, such as if they choose to work in public service) and consolidation, which means combining at least two loans into one loan and getting a new interest rate.
Cons of Federal Student Loans
What are the downsides of federal student loans? You may have heard that you should take out federal student loans before private student loans, but you should still consider all angles of federal student loans before you borrow.
- Borrower limits: Your child cannot borrow an unlimited amount with federal student loans. As your child becomes a first-year through fourth-year college student, they can borrow progressively more. They will face an aggregate loan limit that they cannot go over for both undergraduate and graduate school.
- No subsidized loans for graduate students: Graduate students cannot tap into Direct Subsidized loans, which means the government will not pay the interest while your student is in school. Graduate students must also pay a higher interest rate for their federal student loans.
- Not all institutions participate: Not all educational institutions that distribute Title IV student aid funds, which means that your child’s school may not offer federal student loans.
- Hard to discharge: It is extremely difficult to discharge federal student loans. If your child defaults or cannot repay federal loans will not get away from them through bankruptcy. In short, it’s really hard to discharge student loans, including through Chapter 13 or Chapter 7 bankruptcy.
Pros of Private Student Loans
The benefits of private student loans include the following:
- Fills in the gaps: Private student loans can fill in the gaps between the sticker price of a college, financial aid your child receives and federal student loans. When your child has unmet need, private loans can take care of the rest.
- Unlimited borrowing: Generally, you can borrow up to the cost of attendance in private student loans, minus financial aid.
- Tax-deductible interest: Interest may also be tax deductible on private student loans.
- May have lower interest rates: You may find that certain private loans have lower interest rates than graduate and parent loans, particularly with regard to graduate and parent loans through the Department of Education.
Cons of Private Student Loans
The downsides to private student loans include:
- No access to federal protections: Your child will not have access to federal income-driven repayment or loan forgiveness options with private student loans. They also wouldn’t be subject to orders from the federal government to cancel student debt.
- Based on creditworthiness: Qualifications for private student loans are based on creditworthiness, which means that you or your student must undergo a credit check. Lower credit scores combined with lower income can result in a higher interest rate. Your credit score is a three-digit number that ranges from 300 – 850 and summarizes how well you have paid back debt in the past.
- No federal subsidies: The federal government will not pay the interest on a private student loan like the federal government does with a subsidized student loan.
How Are Private Student Loan Interest Rates Determined?
If you take out a private student loan, you must repay it with interest. Private student loan interest rates are based in part on your credit score (as a cosigner) or your child’s credit score. The higher your credit score, the lower your interest rate may be.
Your child may have the option for a fixed or variable private loan interest rate. A fixed interest rate stays the same throughout the life of the loan, while a variable interest rate changes depending on an underlying benchmark index rate. Variable interest rates are usually based on the Secured Overnight Financing Rate (SOFR) index rate. As the interest rate changes, your monthly debt payment could go up and/or down due to the changes in the index rate. Interest rates typically include the base rate, the lender’s policies and you or your child’s credit history. To break it down even more, they are based on fixed margin, or the lender’s decision about your ability to repay the loan — this part of your loan doesn’t change. The variable part of the interest rate changes, and that part is based on the interest rate index.
Ask private lenders about the total cost of the variable interest rate you’ll pay and also compare these rates to current federal student loan interest rates, currently first disbursed on or after July 1, 2022 and before July 1, 2023.
Fixed Interest Rate
Direct Subsidized loans and Direct Unsubsidized loans
Direct Unsubsidized loans
Graduate or professional students
Direct PLUS loans
Parents and graduate or professional students
Note that private student loans list an annual percentage rate (APR), the annual cost of a loan to a borrower, including fees like loan origination fees. The interest rate doesn’t include these fees. You should always look at the APR of private loans, not just the interest rate.
How Can Students Maximize Both Federal and Private Loans?
Students can take advantage of both federal and private student loans by filing the FAFSA online at fafsa.gov or complete a FAFSA PDF and mailing it in. You can also apply for private student loans on a lender’s website.
Students can generally borrow up to the cost of attendance for private student loans, minus financial aid. The first step involves filing the FAFSA, which you can do in a few simple steps (you can do it for your student or your student can do it by themselves):
First, create an account with a username and password, called an FSA ID, and have the following information handy:
- Social Security numbers for you and your dependent student
- Driver’s license number
- Alien registration number
- Federal tax information, documents and returns
- Records of untaxed income
- Cash and investment balances
- Business and farm assets
List at least one institution to receive your information using the federal school codes for each school.
You can save time by using the IRS direct retrieval tool (DRT), which automatically transfers tax information onto the FAFSA. Note that you can’t see the exact data for security purposes; you’ll see the words “transferred from the IRS” in the appropriate fields.
Maximizing both federal and private loan options also involves understanding the annual loan limits for federal student loans.
Maximum Annual Limits
Direct Subsidized loans and Direct Unsubsidized loans
Between $5,500 and $12,500, depending on year in school and dependency status
Direct Unsubsidized loans (graduate students are not eligible for Direct Subsidized loans)
Up to $20,500 each academic year
You can add up the federal loans your child receives, as well as the work-study, scholarships and grants that make up their financial aid award. What is the gap between the amount of aid received and the amount still owed to the college?
Let’s use some fictitious numbers to illustrate the point. Let’s say your child receives the following:
- $5,500: Federal loans
- $9,500: Scholarships
- $2,500: Work-study
- $1,100: Grants
In this case, aid would amount to $18,600 in total. Let’s say that the cost of college is $25,000 (another fictitious figure). The gap between the cost and the award amount is $6,400, which means your child could then apply for a private loan to cover the rest of the costs.
Is a Private Student Loan a Good Option?
A private student loan can offer a wonderful opportunity to allow your child to achieve a college degree and their career ambitions.
However, it’s a good idea to consider all the angles of a private student loan, including the interest rate, loan limits, fees repayment penalty (the amount your child may have to pay if they pay off the loan before it’s due) and even customer service that the private lender may provide.
Consider encouraging your student to exhaust their federal student loan options first due to the federal protections they get with their federal loans, such as consolidation and loan forgiveness.
Your child can also drive down their interest rate with private student loans when they have access to a reliable cosigner with excellent credit. This could make federal student loans a great option.
How to Find the Right Private Student Loan
First and foremost, carefully compare options between private loan lenders, including repayment terms. You can help your child take the following steps to find the best student loans for college.
Step 1: Put together a lender list.
Help your child put together a lender list. Look at reputable companies known to support borrowers during repayment. You can eliminate any lenders that don’t line up with the eligibility requirements for your child’s particular situation.
Don’t forget to check with the financial aid office of the school your child plans to attend for a preferred list of lenders. Many institutions are direct lending institutions for college loans.
Step 2: Check the loan terms.
Loan terms tell you how long your lender expects you to pay back your debt. Unlike federal student loans, you do not get a standard repayment schedule for private student loans. Many private student loans give students 120 months (10 years) to repay their loans, but some private lenders allow a 25-year repayment term.
Also, find out what happens if you can’t make your payments. Private lenders don’t have forbearance programs if your child loses a job in the future, though the best loan providers for students may help out in a sticky situation.
Step 3: Get quotes and compare offers.
Prequalify with a lender next. Lenders will do a soft credit inquiry when they check your credit for prequalification, which doesn’t hurt your credit quite as much as a hard credit inquiry.
Next, compare offers to determine the lowest rate, best repayment term for your child’s situation, borrower protections and other benefits.
Step 4: Choose a lender.
Finally, choose a lender and complete an application using the lender’s process. Each lender will offer different instructions on how to get a student loan. Have items handy such as Social Security number, address, enrollment information in school, employment information, financial information, loan amount requested and financial aid information.
Every provider will have a different process on how to get a student loan. Most lenders will tell you the results quickly, but read the fine print before you make a final decision. Your child should have about 30 days to accept the loan offer and your lender should release the funds within weeks or months.
Can My Child Get a Private Student Loan without a Cosigner?
Eligibility requirements for a private student loan vary depending on your student’s lender and the loan you want to take out, but generally, your child will face limited options if they can’t get a co-signer.
How to Get Private Student Loans with Bad Credit
How might you help your student get student loans, even if you have bad credit? Naturally, you want to raise your credit score to increase your chances of cosigning a private student loan with your child. A couple tactics include paying off debt, making all payments on time and keeping your credit utilization low. Let’s take a quick look at all of these options.
- Pay off debt: Having a lot of unpaid debt can affect your credit score. Paying off your debt may help raise your credit score and help you cosign a private loan with your child. You can benefit from paying off any debt you have, whether from your own student loans, credit cards, personal loans and more.
- Make payments on time: Making payments on time can also increase your credit score for any loan you owe on. Setting up autopay on all bills can help you raise your credit score.
- Keep credit utilization low: Your credit utilization ratio compares the amount of credit you use versus the amount of credit you have available. For example, if you have a credit card limit of $5,000 and use $1,000, in this particular instance, your credit utilization limit is 20%: $5,000/$1,000 = 0.20 x 100 = 20%. Try keeping this number below 30%.
You can’t pinpoint an exact time that your credit score will take an upswing, it’s always worth trying to make it happen so you can become a cosigner for your child.
Let’s take a look at a few frequently asked questions about private loans for college.
What are the eligibility requirements for a private student loan?
Lenders each have their own eligibility requirements. In general, your child must be a U.S. citizen or permanent resident, attend school at least half time and qualify with a cosigner. Understand the risks before you become a cosigner, because you’ll need to make monthly payments on your child’s loan if they default on their loans. Getting a loan without a cosigner can cause your child to pay more in interest over time.
How do you find the best private student loan?
What is the best student loan? Shop around to find the best private loan. Check on interest rates, fees, customer service, ratings among current customers, repayment options, including repayment flexibility and more. The private loans that have the lowest interest rate and most favorable customer service options, fees and repayment options should catch your interest. However, consider having your child take advantage of federal student loans first, which usually offer more repayment perks and lower interest rates.
Do private student loans have fees?
Private student loans can come with fees, such as the origination fee (the amount your child pays to to take out a loan, which is the percentage of the loan fee), the application fee (the fee charged to process your application), late payment fee (the fee your child pays if they don’t make on-time payments) and prepayment penalty (the fee for paying off the loan early). Make sure your child can pay the loan off whenever they want.
Here’s how College Money Tips chose the best private student loan lenders: We reviewed interest rates, repayment options, loan amount options, cosigner details, fees, Better Business Bureau (BBB) rating, customer service and other benefits. We aggregated the data based on all of these factors and made decisions based on top scores in each category.