What Are Private Student Loans?

Resources to help you pay for college.

What is a private student loan? 

Private student loans are money that you may borrow to pay for college from sources other than the government, such as banks, credit unions, and other financial institutions. Unlike federal subsidized and unsubsidized student loans, private student loans require an application process, and approval is not always guaranteed. Private student loans should be the last option you consider after maximizing all other types of financial aid. For more information about borrowing loans for college, check out this article on Private vs. Federal Loans.

When should I consider private student loans?

Since private loans are the most expensive way to cover the cost of your education, they should be used as a last resort. Be sure to thoroughly check all your other options for covering your college bill and related expenses:

  • Accept the full amount of Federal Direct Subsidized and Unsubsidized Loans for which you’re eligible. These loans tend to have lower interest rates and more flexible repayment terms than private student loans. 
  • Find ways to cut down on your college expenses, such as buying used textbooks, looking for cheaper on or off campus housing options, and waiving the institutional health insurance plan, if you’re eligible. 
  • Look at your budget to see if there is money available to cover any portion of your college expenses out-of-pocket.

By taking the above steps, you can reduce the overall amount you need to borrow in private loans.

What should I look for in a private student loan?

Once you’ve explored all the other resources for covering your remaining college bill, start shopping around for private loans. A good place to start may be the bank or credit union that you or a family member use, as they may offer more favorable lending terms to their existing customers. As you research private student loan offerings from lenders, here are some things to look for:

  • Lower interest rates. The lower the interest rate, the more affordable your loan will be over time. Pay attention to the interest rate as it may be fixed (which stays the same over time), or variable (which may fluctuate).
  • Flexible repayment options. Some lenders offer the ability to postpone payment until after graduation (known as deferment). It may also be worth asking if the lender offers forbearance, which is a period (usually a year) where a student borrower will not be required to make payments on their student loans due to financial hardship.

What do I need to apply for a private student loan?

You’ll need to complete an application to get a private student loan. The application process usually requires you to provide your Social Security number, an official ID (such as a driver’s license), proof of address, and a credit check. You’ll also need to provide information about your college, enrollment details, and have an idea of the amount you need to borrow to cover your college expenses for the year. Review your financial aid offer from the college you plan to attend to help determine the amount you need to borrow. Your college’s financial aid office can also answer questions about private loans.

As you plan out how to pay for your education, remember that you may need to reapply for private student loans every year and approval is not guaranteed from one year to the next.

Will I need a cosigner for a private student loan?

You may need a cosigner to be approved for a private student loan, especially if you’re an undergraduate student and don’t have a credit history. A cosigner is someone who has an established, positive credit history, and agrees to pay the loan back if you’re ever unable to pay it. A cosigner can be a parent, relative, or someone else in your support system who is willing to apply with you.

How do I determine how much I need to borrow in private student loans?

If you must borrow a private loan, limit the amount you borrow to the minimum needed to cover the difference between your financial aid and your college costs. You can do this by leveraging the other available resources, including grants and scholarships, college savings accounts, and federal student loans, and only borrowing what you need. The best way to determine how much you need to borrow is to review the financial aid offer for the college you plan to attend and determine if you have a gap between your total aid offered and the total cost of attendance. Consider if you have savings or help from family to cover the estimated bill, and if there is a remaining amount to pay, you can then consider if private student loans are right for you. Remember, any amount you borrow will need to be repaid with interest. Set yourself up for success later by maximizing other types of financial aid and only borrowing the amount you truly need.