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For some families, private student loans offer a critical piece to solving the college funding puzzle. With so many options and details to consider for securing a private loan for college, it’s easy to get overwhelmed! Start with our FAQ below which provides clear and concise answers to the most common questions about private student loans.

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Curious About Private Student Loans: Top Questions Answered

ELIGIBILITY


Who is eligible for a private student loan?

College students who apply for a private loan must be planning to enroll at least half-time in their undergraduate degree program. While federal student loan eligibility depends on need—determined by your FAFSA application—private loans are based on creditworthiness.

Students and families typically turn to private loans if federal loans, grants, work-study, and scholarships don’t cover the total cost of attending college.

Since many students do not have a credit history, they will typically need a cosigner—often a parent—whose credit score will determine eligibility and, ultimately, the loan terms. That cosigner will be on the hook to repay the loan if the student borrower defaults.

How much can I borrow through private student loans?

The amount you can borrow depends on your lender and your (and your cosigner’s) credit profile, which can include credit history, debt-to-income ratio, and other financial considerations. Only borrow what you need to attend, and carefully consider your ability to repay the amount you borrow.

The Education Data Initiative (educationdata.org) reports the following average cost of college and tuition, updated May 24, 2024:

Average cost of college in the United States:

$38,270 per student per year, including books, supplies, and daily living expenses

An in-state student attending 4-year public institution and living on campus:

$27,146 for one academic year

A student attending a 4-year private, non-profit institution and living on campus:

$58,628 per academic year ($38,768 of the total is tuition and fees)

For students and families whose federal loan packages fall short of the total cost of attendance, a private loan for college can help cover any remaining costs. Private loans are paid directly to the college or university and can cover school-certified costs including tuition, room, board, books and supplies, transportation, and personal expenses.

INTEREST RATES


How do private student loan interest rates work? How do they compare to federal student loans?

Private loan interest rates are typically based on the borrower’s credit score; lower rates are typically offered to those with higher (better) credit scores. Private student loan interest rates are often higher than federal student loan interest rates and may be variable , which means they can change over the life of the loan. In contrast, federal loan rates are always fixed and will remain unchanged for the life of the loan. Federal student loans also provide more borrower protections. It’s important to recognize that taking out a private loan makes students ineligible for income-driven repayment plans and loan forgiveness. As such, it’s usually worth fully exploring all of your federal grant and loan options before turning to a private lender.

Are private student loan interest rates fixed or variable?

Many private lenders offer both fixed and variable interest-rate loan products. Fixed-rate loans have the same interest rate throughout the life of the loan, so you pay the same amount every month. Variable-rate loans have interest rates that may change over time. Variable-rate loans may be attractive as they sometimes feature lower rates than fixed-rate loans at the start of the loan. However, these interest rates may change over time, which could dramatically increase your monthly payment. See educationdata.org for more about fixed vs. variable rates.

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REPAYMENT OPTIONS

When do I have to start repaying my private student loans?

It varies. Some lenders offer a grace period of up to 12 months — but most require you to begin repaying six months after graduation, or, if you drop below half-time enrollment. Some lenders will require you to begin paying back your loan as soon as the funds are dispersed.

Are there different repayment plan options?

Yes. Depending on your loan and lender, there may be options with regard to loan term and monthly payment amounts. Bear in mind that the standard federal loan repayment plan has a 10-year term. Private loan terms generally run from five to 10 years, though some may be extended beyond that.

Repayment plans vary by lender but could include fixed monthly payments, graduated monthly payments that start lower and increase gradually over time, or income-based repayment, where your minimum monthly payment is calculated as a percentage of your income.

Can I refinance my private student loans?

Yes. Refinancing a loan can lead to a lower interest rate or a more manageable monthly payment. If rates have dropped since you took out a private loan with a fixed rate—or increased since you took out a loan with a variable rate—you may benefit from refinancing. When you refinance, you can include multiple loans, shift from a fixed to a variable rate or vice versa, and shorten or lengthen the term of your loan. An important note: When you refinance a federal loan it becomes a private loan, which makes you ineligible for enrolling in income-based repayment plans. 

RISKS

What are the risks of private student loans?

In general, private student loans feature higher interest rates and fewer protections than federal student loans. If you decide to take out a private student loan, these are the most important things to know:

  • A loan with a variable rate means that the interest rate can increase over time—and lead to higher monthly payments.
  • Private loans offer limited repayment plans, fewer options for deferment and forbearance, and make borrowers ineligible for loan forgiveness.
  • Your loan rate and amount depend on your or your cosigner’s creditworthiness; a borrower with a lower credit score will generally pay a higher interest rate and may not qualify for a loan.
  • If you enroll at less than half-time or drop out of school, your loan repayment will begin at once, with no grace period. 

HOW TO APPLY

How do I apply for a private student loan?

Always shop around for the best rate before you apply for a private loan for college; many lenders offer rate quotes to enable this process. It’s not just about the interest rate, though this is obviously very important. You also want to find out the following from each potential lender:

  • Fees to apply or initiate the loan
  • Repayment plan options
  • Repayment term options
  • Discount opportunities

Once you have a rate quote and have selected a private lender, you can apply online.

What documents and information should I have ready when I start the process?

Each lender will provide a list of items needed to apply for the loan. Be prepared to provide the following for both you and a cosigner if using one:

  • Personal Information, including legal name, contact information, DOB, and SSN
  • School information, including name, address, enrollment status, expected graduation date, and loan amount
  • Proof of income, such as pay stubs, W-2s, and tax returns
  • Employment information
  • Housing costs (rent or mortgage obligation)

This is not an exhaustive list, so check with each lender’s specific requirements, and have everything on hand when you start your online application process.

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This general overview does not cover all the possible questions or scenarios related to private loans for college. By carefully considering your options and doing research to compare lenders, you can make more informed decisions to help you achieve your education goals. Check out our Paying for College Resource Center to learn more.