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Private Student Loan FAQs

A private student loan is a credit-based loan for college that can cover the gap between financial aid received and the full cost of attendance. Private student loans are issued by private lending institutions, such as banks and credit unions. Lenders will require you to submit an application. Upon receipt of your application, they will confirm you meet their credit approval criteria, and ask you complete any other requirements (such as verification of school registration).

Private student loans should not be confused with student loans offered by the U.S. Department of Education, which does offer federal student loans through the federal student aid program. To learn more, please see an Introduction to Federal Student Loans.

Lenders accept and process private student loan applications throughout the year. You may apply at any time.

There are the obvious expenses, such as school tuition and fees. However, you can use your student loans to help you cover other education-related costs. Some of those items include:

  • Books and supplies
  • Housing – on- or off-campus
  • Food
  • Transportation to and from school
  • Childcare
  • Study abroad

In general, you are able to use your money to help you cover the cost of college and living expenses while you’re attending college.

HOWEVER, it’s inappropriate to use your student loans to pay for vacations (like spring break), buying clothes, or to invest that money to try to get a profit. If you are using student loan money inappropriately, there could be consequences (like an immediate demand of repayment). If you don’t get caught using your student loan money to live luxuriously, you could be paying that money back for years after graduation. /p>

Here are some of the key differences:

  Private Student Loan Federal Student Loan
Lender Bank, credit union, financial institution, state agency, or college/university U.S. Department of Education
FAFSA Required? No Yes
Interest Rate Type Fixed and variable options available Fixed
Rates Based on Credit Criteria? Yes No
Cosigner Required? Yes, unless borrower has strong credit history No*
Repayment Plans Varies by lender. Some lenders may offer multiple options. Multiple plans (including income-driven) available
Forbearance Options Varies by lender. Typically one year. Three years

*Direct PLUS Loans offered to parents of students attending college, or graduate students, require a credit check. If the borrower is found to have adverse credit, a cosigner may be required.

For more information on federal student loans, check out our Federal Student Loan FAQs.

Private student loan lenders, generally, will not let you borrow money in excess of your cost of attendance. Your school will let you know the maximum amount you can borrow in a private student loan, which will be determined by subtracting all the aid you have been awarded/accepted from your total cost of attendance.

90% of undergraduate students and 75% of graduate students need a cosigner to get approved for a private student loan. Some students may have the credit qualifications to get approved without a cosigner. It all depends on your credit rating and history.

Different lenders have different qualifying criteria. To determine eligibility, it’s best to contact a potential lender directly.

One method is to enter your school at You will be presented with a list of our lender partners who work with your school. If you have any additional questions, or would like to seek additional options, it would be best for you to contact your school’s financial aid office.

The exact amount of time will vary by lender, school, and time of year. Generally, the process can take as little as two weeks and as long as two months. Since the loan funds will be sent directly to your school, any money left over after the school applies your loan to your account will be refunded to you.

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.

Private student loan terms and conditions vary by lender. However, there are some terms and conditions that tend to be pretty similar from lender to lender.

  • The interest rate on a private student loan is determined by the credit of the borrower and cosigner (if needed), among other factors.
  • The loan funds are sent directly to the school.
  • Repayment typically begins six months after leaving school, but interest may begin to accrue immediately after the loan is disbursed.
  • The amount borrowed usually determines the time period for repaying the loan.

Failure to meet the terms and conditions of the loan you chose may damage the credit of both the borrower and cosigner.

It depends. If you make all of your payments on time, your credit may improve over time. Late and missed payments may damage your credit.

If you need to obtain a loan later (additional private student loan, car loan, or mortgage), your debt-to-income ratio will likely be considered. It is always recommended to borrow only what you need.

There are no prepayment penalties on federal student loans. Making extra payments is a great way to pay off your loans faster and save money on interest. 

Yes, some private student loan lenders offer options for students who are seeking professional training and trade certificate programs. 

Many students enrolled in non-degree programs don’t know where to turn when they need help paying their tuition and fees. And like them, you may be considering other types of funding, like using a credit card or obtaining a personal loan. You would want to weigh your options carefully, credit cards may come with high interest rates, and personal loans may not offer flexible options for student borrowers. 

Compare private student loan lenders that work with your school today. 


Borrower benefits, like forgiveness, vary by lender. Before you obtain a private student loan, it is recommended you review the terms and conditions for each loan you are considering.

Unless you have a strong credit rating and history, you will probably need to apply with a credit-worthy cosigner. It's also important to remember that not all lenders provide loans at all schools, so you will need to select a lender that works with your school.

Technically, yes. But private student loans, like federal student loans, are very difficult to have discharged through bankruptcy proceedings. You will need to demonstrate that the repayment of the loan would "impose an undue hardship on the debtor and the debtor's dependents." (U.S. Bankruptcy Code). For more information it is best you discuss your options with your legal adviser.