University of New Mexico

Private student loans are provided by private lenders — banks, credit unions, and online lenders. You can use private loans to pay for education costs and living expenses, which might not be covered by your federal education loans. Interest rates and terms on private student loans can vary, depending on your financial situation, credit history, and the lender you choose.

How can you use private student loans?

You can use private student loans to pay for education-related costs and living expenses, which might not be covered by your federal school loans. Some uses include:

• Tuition and fees
• Room and board
• Housing utilities
• Meals and groceries
• Books
• Supplies
• A personal computer you’ll use for school
• Dependant child care expenses

Learn More: How Do Federal and Private Student Loans Work?

There are several types of student loans:

• Federal student loans are offered by the U.S. Department of Education and have interest rates set by Congress. These loans also provide benefits and protections that private student loans don’t offer, such as access to federal deferment and forbearance options, income-driven repayment programs, and student loan forgiveness programs.
• Undergraduate student loans include both federal and private student loans that are used to pay for your undergraduate studies.
• Parent PLUS loans are available to parents who want to help their child pay for school. Unlike other federal student loans, PLUS loans require a credit check, and you might not qualify if you have an adverse credit history, such as a default, delinquent account, or repossession. Keep in mind that some private lenders offer parent student loans, too — though these don’t come with the federal protections that PLUS loans offer.
• Graduate student loans can be used to help you pay for grad school. Direct Unsubsidized Loans and Grad PLUS loans are two types of federal student loans that can be used for graduate programs. There are also several private lenders that offer graduate student loans.
• MBA student loans can help you finance a business degree. While you might be able to use a general graduate student loan to pay for these costs, there are also private lenders that offer specialized MBA loans.
• Law school student loans can be used to pay for a law degree. You can take out general graduate student loans for this, or borrow specialized law school loans from certain private lenders.
• Medical school student loans can help you cover expenses while attending med school. Some medical school loans also let you defer payments until after residency.

Learn More: Guide to Every Type of Student Loan Offered

Federal student loans are funded by the federal government while private student loans are offered by private lenders. Here are several important points to keep in mind as you compare them:

*Federal student loan interest rates apply to loans disbursed on or after July 1, 2022, and before July 1, 2023.

Private college student loans

Private student loans are offered by private companies that decide their own rates and terms. To take out a private student loan, you’ll have to undergo a credit check, which is used by the lender to determine your creditworthiness as well as your rate.

Keep in mind that private student loans generally don’t provide the same protections as federal student loans. However, they do offer some perks of their own, such as:

• Higher loan amounts: Some lenders allow you to borrow up to your school’s cost of attendance.
• No application deadlines: You can apply for a private student loan at any time.

Federal student loans

Federal student loans are offered by the federal government and have their rates set by Congress. To apply for these loans, you’ll need to fill out the Free Application for Federal Student Aid, or FAFSA. Unlike private student loans, most federal student loans don’t require a credit check.

If you need to borrow for school, it’s usually a good idea to start with federal student loans. This is mainly because they offer federal benefits and protections, including access to:

• Income-driven repayment plans: These plans base your payments on your income.
• Student loan forgiveness programs: Most of these programs require you to work in certain fields, such as medicine or law.

Learn More: Federal vs. Private Student Loans: 5 Differences

The interest rates on student loans vary depending on what type of student loan you have. Here are the current interest rates you can expect for both federal and private student loans, as well as how they’re set:

Federal student loan interest rates

Rates for federal student loans are set by Congress and can change from year to year. Here are the current federal student loan interest rates for the 2022-23 academic year:

• Direct Subsidized Loans: 4.99%
• Direct Unsubsidized Loans (undergraduate): 4.99%
• Direct Unsubsidized Loans (graduate and professional): 6.54%
• Direct PLUS Loans: 7.54%

Private student loan interest rates

Rates for private student loans vary between lenders and are based on market factors. Other factors that will influence the interest rate you qualify for include your credit, repayment term, and whether you have a cosigner.

Here are the current fixed and variable private student loan interest rates offered by Credible partner lenders:

• Fixed rates (APR): As low as 3.49%
• Variable rates (APR): As low as 4.63%

Learn More: Current Private Student Loan Interest Rates

An interest rate is a percentage of the loan periodically tacked onto your balance — this is essentially the cost of borrowing money. Your monthly payment often goes toward paying interest first before the rest is allocated toward the principal (the amount you initially borrowed).

Getting a low interest rate could help you save money over the life of the loan and pay off your debt faster.

What is a fixed- vs. variable-rate loan?

Before you borrow, you’ll need to decide whether you want a fixed- or variable-rate student loan. Here’s the difference between the two:

• A fixed rate will stay the same over the course of your loan term. This also means your payments won’t ever change.
• A variable rate can fluctuate and possibly even increase over time. Because of this, your payments might rise or fall.

While private student loans can be a helpful option in some cases, they also come with drawbacks to keep in mind, including:

• No federal benefits: Private student loans don’t come with federal benefits and protections. For example, you won’t be eligible for student loan forgiveness programs or federal deferment and forbearance options.
• Lack of repayment options: Unlike federal student loans, private student loans don’t provide a variety of repayment options. For example, private student loans typically don’t offer income-driven repayment or graduated repayment plans.
• Potentially higher interest rates: If you have excellent credit, you might get approved for a lower interest rate on a private student loan compared to a federal loan. However, many college students haven’t yet established enough of a credit history to qualify for these rates — so unless you have a cosigner, you’ll likely get a higher rate on a private student loan.

With a private student loan, you’re eligible to borrow up to 100% of what your school says it costs to enroll and attend classes (the “cost of attendance”), minus other financial aid and loans you’ve already received.

How much you can actually borrow will vary by lender and can include annual or cumulative borrowing limits. Other private lender criteria that can affect how much you can borrow might include your credit history, the credit quality of your cosigner, your school’s certified cost of attendance, the degree you’re earning, and more.

Find Out: What Are Student Loan Limits?

If you’re approved for a private student loan, the lender will send the loan to your school for certification. During this process, your school will confirm several details, including your:

• Requested loan amount
• Enrollment status
• Grades
• Anticipated graduation date

Your school can then opt to certify the loan you requested as-is, certify it with changes, or not certify it. Afterward, the lender will send your loan funds directly to your school. Your school will use the funds to cover your required tuition and fees before refunding any remaining amount to you.

Note that the certification process typically takes seven to 10 days, but it could take longer depending on the time of year and your school’s procedures. For example, January and August tend to be particularly busy months for schools, so certification could be delayed.

Because of this, it’s generally a good idea to apply for a private student loan as soon as you know you’ll need one. This way, you can avoid any potential delays.

You can apply for private student loans at any time, since there’s no deadline tied to them (like filling out the FAFSA for federal loans). But it’s still a good idea to apply for private loans as soon as you know you’ll need them to cover education costs.

Although it varies depending on the lender and your school, it can sometimes take 3 to 5 weeks for you to receive the funds. So, if you’re trying to decide when to apply for a private student loan, be sure to give yourself some time and apply sooner rather than later.

Each lender has different requirements when it comes to qualifying for a private student loan. But typically you must:

• Have a qualifying credit score (or a cosigner with one)
• Have a qualifying income and debt-to-income ratio (or a cosigner with one)
• Be enrolled in an eligible education program
• Be a U.S. citizen or legal resident with a Social Security number
• Be at least 18 years old and hold a high school diploma or equivalent (or have a cosigner)
• Use the loan for education purposes only

Keep in mind that some private lenders offer student loans for international students or student loans for DACA recipients — be sure to check with the lender to see what the requirements are.

Learn More: How to Qualify for a Student Loan

You can get a student loan with bad credit, but not necessarily on your own. While federal loans don’t require a credit check, private student loans do. Many students don’t qualify for private loans on their own because they don’t have a credit history or they have bad credit. If that’s your situation, you may need to add a cosigner to qualify for a private loan.

Private student loans require a credit application that examines income, employment, and a credit report. The lower your credit score, the higher the risk for the lender, which translates into higher interest rates. One way to get approved for a loan with a lower rate can be to add a creditworthy cosigner to your loan application.

Keep Reading: How to Find a Cosigner

It depends, but in most cases, yes. You don’t have to add a cosigner unless you’re under the age of majority in your state (usually between 18 and 21). But if you have a limited or poor credit history, a lender may require you to add a creditworthy cosigner to balance out their risk on the loan.

Plus, more than 90% of private student loans taken out by undergraduate students are cosigned, according to a report by Enterval Analytics. Even if you’re a graduate student and don’t need one, adding a cosigner with good credit can improve your chances of qualifying for a private student loan at a lower rate.

Learn More: Getting Student Loans Without a Cosigner

When weighing private student loan options, it’s important to consider as many lenders as possible. This way, you can find the right loan for you. Here are several important points to compare as you shop around:

• Interest rates: The lower the interest rate, the more you can save on interest charges over the life of the loan. Your credit as well as the repayment term you choose will impact the rates you qualify for.
• Repayment terms: Available terms vary between lenders — for example, many Credible partners offer terms ranging from five to 20 years. It’s usually a good idea to choose the shortest term you can afford to save as much as you can on interest charges. Opting for a shorter term might also get you a lower interest rate.
• Loan amounts: While some lenders will let you borrow up to your school’s cost of attendance, others have smaller loan maximums. Be sure to choose a lender that offers the loan amount you need.
• Fees: Some lenders charge fees — such as origination fees or prepayment penalties — which can add to your overall loan cost. Keep in mind that if you take out a loan with one of Credible’s partner lenders, you won’t have to worry about application, origination, or disbursement fees.
• Discounts: You might be able to qualify for rate discounts from some lenders. For example, many lenders offer a discount if you sign up for automatic payments, while others offer discounts if you have a previous account with them.

You can also check out our lender reviews for more information:

• Ascent review
• Citizens review
• College Ave review
• EdvestinU review
• INvestEd review
• MEFA review
• Sallie Mae review

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