Definition: A private student loan (also known as a private education loan) is a non-federal loan used for education related expenses. Private student loans may be an option once you 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.
What Is a Private Student Loan?
If you're looking for no-nonsense information and help with private student loans, you've come to the right place. There are indeed different types of student loans, and different advantages. Let's start with the basic definition.
How Do I Qualify for a Private Student Loan?
To qualify for a private student loan you will typically need:
- Strong credit history. A creditworthy cosigner is highly recommended.
- A verifiable proof of income or employment history. Minimum income requirements will vary by lender.
What are the Best Private Student Loans?
The best private student loans are those that:
- Provide competitive interest rates
- Offer no application or origination fees
- Do not charge late fees
- Make a cosigner release available
- Provide flexible repayment options
What Can I Use Private Student Loans For?
- 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
You can compare private student loan 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.
Private loan options for undergraduate students. Loans are also available for parents and grad/professional students, including medical professionals.
Private student loan options for undergraduate and grad students.
Loan options for undergraduate and grad students.
Wells Fargo’s MedCAP® Alternative Loan
This can be used by health professions students for in-school expenses.
Wells Fargo’s MedCAP-XTRA®
Used to cover residency, relocation, and expenses related to medical boards.
This is a catch-all description for loans that typically cover bachelor’s or associate degrees. Some lenders may provide loans for non-degree programs also.
Graduate students pursuing masters and doctorate degrees may obtain these.
Graduate students enrolled in a law school, typically post-baccalaureate.
These are used by bar exam candidates to cover the cost of bar study preparation.
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.
These loans are for post-graduate medical residents.
As an alternative to the federal Direct PLUS Loan, these loans often come with zero origination fees and competitive interest rates.
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 Rubin—helpful.
When to Apply for Private Student Loans
If you decide to apply for a private student loan, we suggest you apply as soon as you know where you are going to college. That way your lender can send the private student loan certification form to the correct school.
And if you’re still considering your options to pay for school, we completely understand. There are a number of considerations that go into deciding how to finance a college education. 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 2019” study, more than half of families borrow to cover college costs. In the 2018-19 academic year, parent income and savings only paid $7,801 (on average) for college costs which in total averaged $26,226.
In comparison, students contributed 27% of total college costs from a combination of income, savings, and borrowing, with 14% of total costs coming from loans.
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 13th Annual Project on Student Debt, “Student Debt and the Class of 2017,” published by The Institute for College Access & Success (TICAS) in 2018, average student loan debt among college seniors is $28,650. Moreover, approximately 15% of the debt acquired among the Class of 2017 was non-federal debt.
Keep in Mind: Student Loan Repayment
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.
Using a Credit Card for College Expenses vs. Private Loans
Is it wise to use a credit card to pay for college expenses? Just because you technically can does not necessarily mean you should. If you’re considering the pros and cons, here are some things to add to your evaluation.
|Credit Cards||Private Student Loans|
|Revolving line of credit that typically carries a variable interest rate, often higher than that of a private student loans.||Installment loan with either a fixed or variable interest rate. In some cases, lenders offer discounts on the interest rate for things like auto debit (ACH) payments.|
|This is a non-school-certified option to pay for college expenses.||Must be certified by the college or university.|
|College/universities may charge a credit card processing fee (or convenience fee). This is in addition to the interest charges the credit card company imposes.||Many lenders waive the origination fee. For certain borrowers, this may even make private student loans an attractive option over federal loan options (such as Parent PLUS and Grad PLUS programs).|
As an industry standard, credit card payment are due the following month after expenses are incurred.
There is a narrow window (billing cycle of between 21-25 days) to avoid interest charges if balances are paid in full.
|Loans may be deferred until after graduation, or interest-only payment may be made during school. If you don't pay the interest, it will be added (capitalized) to your loan balance following the grace period, at the start of repayment.|
|The primary cardholder is responsible for the debt. There is no cosigner release option.||Cosigners may be released after a series of qualifying, on-time monthly payments. This varies by lender. Cosigners may also be released via student loan refinancing. And this includes the option to transfer debt from the parent to the student (through select partners). Eligibility is based on credit an income verification.|
|Very rarely are forbearance programs available.||Deferment or forbearance options may exist during repayment.|
|Credit cards may carry perks like cash back bonuses and points with partner program (like airlines and hotels).||Benefits vary by lender but are usually not as diverse as credit card perks.|
Student Loan Rates
One final thought concerning the use of private student loans: get a strong 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 2.5% APR and fixed rates starting around 3.9% 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. When comparing lenders, 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.