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Private Student Loan Basics

It’s important that students and families responsibly borrow for college. Explore scholarships, grants, and federal student loans to supplement savings before considering a private student loan.

Private student loans, also referred to as private education loans, should also be considered before using your family’s retirement funds to pay for college.

What you need to know about private student loans:

  • They are 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, including how you’ve managed your credit (money you’ve borrowed and repaid) in the past, and what loan terms and options you choose.
  • You have options. Some private loans offer different payment options (including making payments while in school) which can help reduce your interest rate and/or overall total loan cost.

Before signing on the dotted line to accept a student loan, remember that regardless of whether you actually graduate from school or not, student loans must be paid back. Defaulting on a student loan can have a major impact on your financial future. Not paying your loans may lower your credit score and may affect major milestones in your life, including your ability to get a car loan, a credit card, a mortgage, or even a job.

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 individual 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 disclosures

Disclosures are the fine print that’s provided to you when you apply for a loan and will help you understand the terms and conditions of the loan. These disclosures can help you compare different loans from different lenders when you’re shopping around.

Don’t borrow more than you need

Some lenders require the school you are attending to approve your 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 — a new mountain bike or the latest smart-phone doesn’t count as a “related expense.”

Consider finding a cosigner

You may benefit from having a cosigner especially if you are an undergraduate or a student without a steady income or credit history. Even if you have an established credit history, a cosigner may improve your ability to get approved, help you secure a lower interest rate, and speed up the credit decision process.

Talk it over

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

College Planning CalculatorSM

Many students and their families use an “all of the above” approach to paying for college. Build your overall plan with the College Planning CalculatorSM, a free tool that helps calculate the expected cost of college and how you will successfully pay for it with savings, income, scholarships, grants, and loans.

Start Your Plan


Learn about fixed vs variable interest rates (PDF)

Explore the benefits of a private student loan vs a Parent PLUS Loan (PDF)

Next steps

Learn more about the difference between federal and private student loans

Learn more about the Free Application for Federal Student Aid (FAFSA)

Estimate your monthly student loan payment with The Student Loan Payment Amount Estimator

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