Private Student Loans
A private student loan is provided by a private lender, including a bank, credit union, state agency, or university. The terms and interest rates are based on your credit score, annual income, and other financial factors. Read the fine print carefully so that you don’t find yourself with more student loan debt than you anticipated upon graduation.
Tip:
Over the last 30 years, tuition costs at private nonprofit institutions grew from $19,360 to $38,070
Degree-Specific Loans
- Simplicity Undergraduate and graduate students are eligible
- Covers
- Medical programs
- Business programs
- Dental programs
- Law programs
- Community college
- Studying for the bar exam
Bad Credit Loans
It is not unusual for young students to have nonexistent or a poor credit history. When that is the case, a federal loan is probably your best option since it typically doesn’t require a credit check, and everyone receives the same interest rate.
But if you prefer a private loan for any reason, you can find lenders who are willing to bend the rules a little. Since the interest rates are based on your credit history, you might be charged a higher rate than if you took out a standard private loan.
State Specific Loan Programs
When other forms of financial aid are prohibitive due to your poor credit history, state-sponsored student loans can provide you with an affordable option:
A state offers financial assistance to help eligible residents reduce their educational costs
Typically reserved for students who are attending a state college
You can view each state’s eligibility requirements here
Income-Share Agreements:
An income share agreement, or ISA, funds your education or professional training. Upon graduation, you pay off the loan using a fixed percentage of your income. You might repay more or less than the amount you received—it all depends on the agreement’s terms. There is a payment cap that limits the maximum amount you will have to pay.
- Students with lower salaries may pay back less money than they received
- Students who earn a considerable salary could end up paying back more than the original loan
Refinanced Loans For Graduates:
Congratulations, you have graduated. Now is a good time to combine your current multiple loans into a single, new one and save a significant amount of money. This is especially advantageous if you have both federal and private loans with varying interest rates.
Refinancing student loans has many potential benefits:
- Save with a lower interest rate
- Select new payment terms:
- If you need lower monthly payments, you can increase the length of your new loan
- If you want to pay off your loan faster, you can shorten the length of your new loan
Looking At Both Sides Of The Equation
Pros of Private Student Loans
Fixed and variable rates
Higher borrowing limits
No upfront fee
Can be cheaper than federal loans
You can apply with a co-signer, which improves your chances of receiving a lower interest rate
Cons of Private Student Loans
Most are credit-based and more difficult to get
Higher interest rates than federal loans
Are not included in loan forgiveness programs
Default has immediate consequences
If your credit is not great, you could end up with a much higher rate
If you get a variable rate loan, your monthly payment could increase over time
You are responsible for the interest that accrues on your debt
No federal subsidy
It isn’t always forgiven if you die
Private Student Loans vs. Federal Student Loans
| Private student loans | Federal student loans | |
|---|---|---|
| Standardized interest rates | No | Yes |
| Fixed and variable rates | Yes | No |
| Upfront loan fee | Generally No | Yes |
| Requires a credit check | Yes | Generally No |
| Requires a co-signer | Generally Yes | Generally No |
| Access to loan forgiveness programs | No | Yes |
| Access to income-driven repayment plans | Generally No | Yes |
| Loan limits | Typically up to your total cost of attendance | Varies by loan program |
There Are Many Types of Student Loans
The two main types of student loans are federal and private. Within each type are subsets that might appeal to you based on your credit history, financial need, and other factors.
Federal loans were established to help students with limited funds, or a poor credit history, receive a good education. Private loans offer customized options to students with a strong credit history.
Federal Student Loans
Private Student Loans
Fees
Borrowing Limits
Interest Rates
Cancellation Policy
How to Apply for a Federal Student Loan
How to Apply for a Private Student Loan
Repayment Options for Federal Student Loans
Repayment Options for Private Student Loans
Forgiveness Options for Federal Student Loans
Tax Implications
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