While you can use a private student loan for a variety of degree programs and situations, it’s wise to limit your borrowing. Since they’re credit-based, only especially creditworthy applicants secure low APR offers. Private student loans also carry fewer protections than federal loans.
Keep in mind each private student loan provider has its own set of terms, rates, and eligibility requirements that vary, unlike a typical federal loan.
How private student loans compare to federal student loans
Private student loans are issued by private financial institutions. Interest rates differ from one lender to another, and you usually have a choice between a fixed or variable rate. Before approving you for a private student loan, private lenders look at your financial credentials, including your credit. If you can’t qualify on your own, you might have to apply with a cosigner.
Federal student loans, on the other hand, are issued by the Department of Education. They come with a fixed interest rate that is set by Congress each year, and you won’t need to pass a credit check to qualify for most federal student loans. Federal loans are also eligible for a variety of repayment plans, such as income-driven repayment. They may also be eligible for federal loan forgiveness programs.
|PLUS (grads, parents)
||2.94% to 12.99%
||0.94% to 13.49%
*Rates are examples and may not be up to day.
Private student loans also provide borrowers with a greater degree of choice. Instead of being assigned a fixed-rate federal loan to be repaid over a 10-year term, you might opt for a variable rate and a shorter or longer repayment plan.
Private education debt comes with a higher borrowing limit, too, allowing you to cover any gaps in your school’s cost of attendance. With that said, it’s wise to only borrow what you need — and what you can afford to repay. Estimate your potential monthly dues using today’s rates and a student loan repayment calculator.
How to maximize federal financial aid
Because federal student loans carry such wide-ranging repayment flexibility, it’s generally recommended to max out your federal loan allotment before resorting to a private student loan.
The Free Application for Federal Student Aid (FAFSA) is the gateway to federal loans and other aid programs. After completing the FAFSA, you’ll be eligible to accept loans offered by your school — but only up to the limit.
Federal student loan limits
|Undergraduate direct loans
||Up to $5,500/year
||Up to $12,500/year
|Graduate direct loans
||Up to $20,500/year
||Up to your school’s cost of attendance, minus any other financial aid you already received
|Parents of undergraduates
||Up to the school’s reported cost of attendance, minus any other financial aid already received
Note that the government covers interest during your grace period or other areas of deferment for subsidized loans, which are only available to students with financial needs. By contrast, unsubsidized loans are available to any student, regardless of financial need, but they start accruing interest right away.
Private student loan amounts
Almost all undergraduate students will need a cosigner (usually a parent) to qualify. Once you qualify, you can typically borrow as much as you need to pay for school.
Like with PLUS loans, private lenders will usually subtract any financial aid you already received before covering your remaining cost of attendance.