Understand private student loans

Private student loans are different than federal loans.

They’re credit-based. That means the lender will review your creditworthiness—your ability and willingness to repay—before making the loan.

Your interest rate is based on several factors. How you’ve managed your credit (money you’ve borrowed and repaid) in the past and what loan terms and options you choose are considered.

You have options. Most private student loans are taken out by the student (usually with a creditworthy cosigner), but some private student loans can also be taken out by a parent or creditworthy individual, such as a legal guardian, relative, or spouse.

You can choose different ways to pay. Some private student loans offer different repayment options (including making payments while in school) which can help reduce your interest rate and/or total loan cost.

Before applying for a private student loan, remember that regardless of whether you actually graduate from school or not, you need to pay back student loans. Defaulting on a student loan can have a negative impact on your credit health.


How to apply for a private student loan

Shop around. Learning about the different loans available can help you find the one that best suits your needs. A good place to start is your college’s financial aid office, which may have a "lender list" (a list of private student loan providers that the school recommends). Compare what each lender has to offer in terms of fees, interest rates, and repayment options.

Read the footnotes. When you apply for a private student loan, make sure you read the terms and conditions. These can help you compare different private student loans from different lenders when you’re shopping around.

Don’t borrow more than you need. Some lenders require the school to approve or certify your private student loan amount to help you avoid borrowing more than you need. That’s a smart idea. Borrow only for the cost of tuition and related expenses so that your payments are manageable when you finish school.

Consider finding a cosigner. You may benefit from having a cosigner especially if you’re an undergraduate or a student without a steady income or credit history. If a parent or other creditworthy individual cosigns the private student loan with you, it might give you a better chance of approval.

Talk it over. Ask your counselor, or anyone else you trust, to learn more about the process of taking out student loans to pay for college.

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