Definition: A private student loan is a non-federal loan used for education related expenses. It may be recommended once individuals have already exhausted other forms of free and federal financial aid. These loans are typically based on a strong credit history and verifiable proof of income or employment history.
Private Student Loan
If you've asked yourself, "How do I get a private student loan?" you've come to the right place.
What are the Best Private Student Loans?
The best private student loans are those that:
- Offer no application, origination or late fees
- Provide competitive interest rates
- Supplement your other financial aid to meet the total cost of your education
- Help pay for undergraduate, graduate school, and professional degrees, as well as career training
- Cover any education-related expense, including books and computers
- Aid in building your credit — especially with a creditworthy cosigner
- Make a cosigner release available
- Provide flexible repayment options
You can compare multiple options on our site. Keep in mind there are a number of popular private student loan names you may see and hear, and it is bound to be confusing. Sometimes the names will be generic, and other times the name will refer to a specific lender’s program or brand name. The name of the student loan program is not as critical as an understanding of how the particular loan terms work, or how they may impact you. To give you a quick primer on some of the most popular private student loan names you may encounter, see the list below.
- Sallie Mae’s Smart Option Student Loan®
- PNC Bank’s PNC Solution Loan®
- SunTrust Bank’s Custom Choice Loan®
- Wells Fargo’s MedCAP® Alternative Loan
- Wells Fargo’s MedCAP-XTRA®
- Undergraduate Loans (typically used for those seeking bachelor’s or associate degrees)
- Graduate Loans (for graduate students pursuing masters and doctorate degrees)
- Law Loans (for graduate students enrolled in a law school)
- Bar Exam Loans (used by bar exam candidates to cover the cost of bar study preparation)
- MBA Loans (a special name for graduate loans for students pursuing an MBA in business school)
- Health Professions Loans (used by graduate students of allopathy, osteopathy, dentistry, nursing, optometry, pharmacy, veterinary medicine, and other health professions)
- Residency Loans (post-graduate medical residents are eligible)
- Student Loans for Parents (as an alternative to the federal Direct PLUS Loan)
What We Do at PrivateStudentLoans.com
As part of the Edvisors Network, we help you learn how private student loans work, and give you an easy way to compare loans from the country's leading lenders. Get started now to explore student loan options.
If you're at the beginning of the financial aid process, you may find this YesCollege podcast, featuring our in-house expert Elaine Griffin, helpful.
The Basics of When You Should Apply for Private Student Loans
It should be noted that there are a number of considerations that go into deciding how to finance a college education. And we understand that choosing to borrow money for college can be stressful and involves a lot of thought and deliberation. Here are some things to consider:
- The starting point to qualify for any financial aid is always the Free Application for Federal Student Aid (FAFSA®) – pay attention to the priority filing deadlines in your state or at your college, because aid may be awarded on a first-come, first-served basis
- Review your options to pay for your college costs, including:
- Personal savings (including 529 plans)
- Gift aid (think grants and scholarships)
- Tuition payment plans offered through your school
- Income from employment
- Student loans should be considered your last resort option
- If you still need additional assistance, consider your loan options by comparing your federal student loan and private student loan options according to:
- Loan terms and conditions
- Interest rates
- Repayment benefit (like flexible plans and options of discharge/forgiveness)
- If you have not already done so, have a talk with your financial aid office to ensure you’ve truly exhausted all other forms of aid before taking out a private loan. In addition to federal resources, your school may be able to provide institutional aid (such as college backed scholarships or college work study).
- Important: if your family’s Expected Family Contribution (EFC) has changed since you filed your FAFSA, this could materially impact your eligibility for federal or state based aid.
If it turns out that you do need to borrow to pay for college, rest assured you are not alone. According to the Sallie Mae “How America Saves for College 2018” study, the average amount of college savings in 2017 was $18,135 which is one-third of the target amount parents are expected to save. Additionally, fifty-nine percent (59%) of parents indicated that paying for college should be a shared responsibility between the parent and student. In fact, the majority of parents (60%) stated they will not use their retirement fund to help pay for college. In 2016-17, student loans and parent loans accounted for nearly 1/3 (or 27%) of total college funding, whereas the majority of costs were covered through a combination of scholarships, grants, and income/savings. The stark reality is most American students and families have to borrow money as part of the overall financing process to pay for a college education. In fact, according to the 12th Annual Project on Student Debt, “Student Debt and the Class of 2016,” published by The Institute for College Access & Success (TICAS) in 2017, average student loan debt at graduation ranges broadly from $4,600 to $59,100.
What to Keep in Mind
When you consider the value of a college education — including the fact that average lifetime earnings for college graduates are nearly $1 million more than individuals with only a high school diploma or GED — student loans may be a smart investment. If you budget properly and have a good sense of the actual amount of money you need in loan funds to supplement other forms of aid as well as your resources, you can limit your overall indebtedness by borrowing only what you truly need. You should also consider the fact that there are no prepayment penalties. (Note: the lender partners on our site do not charge a prepayment penalty.)
Here are some simple tips to help you pay the least over of the life of your loan:
- Pay your loan while you’re in-school to reduce the amount of interest you will repay over the life of your loan, you have two options:
- Making interest-only payments to avoid interest capitalization when you enter repayment (the process where any outstanding interest is added to your principal balance once you enter repayment), or
- Make small, fixed payments which cover your interest and some of your principal balance.
- Accelerate payments (pay more than your monthly minimum) to reduce total interest paid and limiting the amount of time on your repayment
You can discuss your repayment options with your lender. If you are unable to make payments while you are in-school, you do have the option to defer repayment on your loan until you are out of school. This option will obviously cost the most money because any unpaid (accrued) interest that is not paid before the end of your grace period will be capitalized — or added — to your outstanding principal balance prior to the start of repayment.
An important consideration is the deferred repayment option means your loan balance at the start of repayment will be higher than what you originally borrowed due to the interest capitalization. Also, don’t let the lack of a sizeable payment stop you from sending even a small contribution to your student loan. As insignificant as it may seem now, even a payment of $10 or $20 a month can help curb the amount of money that would be capitalized on top of your outstanding balance.
Every little bit helps.
One final thought concerning the use of private student loans: get a good understanding of the interest rates as well as the loan’s other terms and conditions. Most lenders offer you a choice between a variable or fixed APR (annual percentage rate), so be sure to read up on the differences between the two interest rate options. Keep in mind that the rates advertised may not necessarily be the rates you qualify for based on your creditworthiness — or that of a qualifying cosigner.
For example, you may see variable rates advertised as low as 2.20% APR and fixed rates starting around 5.00% APR. But this is a sunny day scenario. You and/or your cosigner would need to have the right qualifying credit score or credit factors to achieve the lowest rate, and the lender may impose requirements such as signing up for auto-debit from a checking or savings account to lock in these low rates. So, look for the asterisks and footnotes along with the fine print to understand what it takes to achieve or put you in the running for the advertised rates.