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Important Things to Know about Private Student Loans

Paying for college and navigating financial aid can be a challenging process. That’s why we recommend our 1-2-3 approach to help you pay for college responsibly:

  1. Start with money you won’t have to pay back. Supplement your college savings and income by maximizing scholarships, grants, and work-study.
    • Fill out the Free Application for Federal Student Aid (FAFSA) to see if you qualify for need-based federal grants.
    • Use Scholarship Search for access to millions of scholarships. And you can register for free.
    • Explore an interest-free monthly payment plan.
  2. Explore federal student loans. Apply by completing the FAFSA; you may qualify for a federal loan. Federal loans are not credit-based and may offer useful repayment and loan forgiveness plans.
  3. Consider a responsible private student loans. Fill the gap between your available resources and the cost of college.

Consider your student loan options

Federal student loans1

Federal student loans are available to U.S. citizens attending eligible higher education institutions at least half-time. The government sets the interest rate, as well as the loan limits, based on the student’s grade level and whether they’re classified as a dependent or independent student. You apply for federal student loans by submitting the FAFSA each year at The main type is the Federal Stafford Loan, which is available in two varieties:

  • Subsidized Stafford Loans are available to students who demonstrate financial need as determined by a federal formula. The U.S. Department of Education pays the interest while the student is in school and during the grace period and deferments.
  • Unsubsidized Stafford Loans are available regardless of need. The student is responsible for paying interest that accrues on the loan, including while they’re in school.

Federal PLUS Loans are available to parents who want to help their child pay for school. They’re also available to graduate students. With a PLUS Loan, parents and graduate students may borrow up to the full cost of a student’s education, less other financial aid received.

Private student loans

Private student loans are available to undergraduate and graduate students from financial institutions like Sallie Mae®. They’re designed to fill the funding gap when savings, scholarships, and federal student aid aren’t enough.

Unlike federal student loans, private student loans are not sponsored or guaranteed by government agencies and don’t require a FAFSA. They’re credit-based, which means a borrower’s credit score and history are taken into consideration, along with other factors. That’s why applying with a creditworthy cosigner may increase the likelihood that a student is approved for a private student loan.

There are different types of private loans:

  • For students: Private student loans like the Smart Option Student Loan® are taken out by the student with or without a cosigner. Both the student and the cosigner are responsible for the loan.
  • For parents: Loans like the Sallie Mae® Parent Loan are taken out by parents or another creditworthy individual. The borrower is responsible for repaying the loan.

Our loans, as well as those of many other lenders, can be used to help cover up to 100% of a school’s certified Cost of Attendance (COA), less other financial aid received.1

We disburse funds directly to a school once the financial aid office certifies the Cost of Attendance (COA).

Federal student loans vs. private student loans: An example

These two examples show the differences in terms of federal and private loans:

  1. Federal: Mary needs a loan to help fund her bachelor’s degree and her mom wants to help out. Mary’s mom takes out a Federal Direct PLUS Loan after passing a basic credit test. Mary’s mom is the loan holder and solely responsible to pay the loan. The interest rate for the Federal Direct PLUS Loan is a fixed 7.08% with a 4.248% origination fee.1 The standard repayment term is 10 years1 and begins on the final disbursement of the loan. Parents can opt to postpone payments until after their student graduates though interest would accrue during that time.
  2. Private: After exhausting other funding options, Oscar needs a private loan to help pay for his bachelor’s degree; his dad wants to help out. Oscar applies for a Smart Option Student Loan. Since approval and rates for a private loan are based on a variety of underwriting factors, including credit history and income, Oscar’s dad cosigns the loan to help his son improve the likelihood of approval.
    • The loan offers the choice of making monthly interest payments, $25 payments each month2, or deferring payments until after school.3
    • Depending on creditworthiness and other factors, the Annual Percentage Rate (APR) on Oscar’s loan could be from 3.98% to 11.35%3, with no origination fee, if he elects a variable interest rate, but it could go up or down after the loan is approved. Lowest rates shown include the auto debit discount.4
    • After Oscar graduates and makes 12 on-time principal and interest payments and meets certain credit requirements, he can apply to release his dad as a cosigner.5
    • The repayment term on Oscar’s loan will be between 5 and 15 years2, depending on the loan amount.

Both Mary’s and Oscar’s loans offer loan forgiveness in case of their death or permanent disability.6 In addition, interest paid on both federal and private student loans may be eligible for deduction from federal income taxes, subject to certain income restrictions.7

The importance of paying your loan on time

Payment history can affect your future.

On-time student loan payments can positively impact your credit. We encourage customers to make payments online and to participate in auto-debit to reduce the likelihood of delinquency. Some loans may qualify for an interest rate reduction for making payments through the automatic debit program. We alert customers who have missed a payment and remind them to take action to return their account to current status.

For federal student loans, Congress created several repayment options including standard repayment, extended repayment and Income-Based Repayment, which can cap payments at a certain percentage of the borrower’s discretionary income. For private student loans, repayment options vary with the lender and the loan and are typically outlined in the promissory note or contract signed before the loan is accepted.

Making late payments can be reported to all consumer credit reporting agencies, which can have an adverse impact on an individual’s credit health.

If you’re experiencing difficulty paying your student loans, we encourage you to contact your loan servicer to explore whether an alternative payment arrangement is available.


This information is for undergraduate students attending participating degree-granting schools. Borrowers must be U.S. citizens or U.S. permanent residents if the school is located outside of the United States. Non-U.S. citizen borrowers who reside in the U.S. are eligible with a creditworthy cosigner (who must be a U.S. citizen or U.S. permanent resident) and are required to provide an unexpired government-issued photo ID to verify identity. Applications are subject to a requested minimum loan amount of $1,000. Current credit and other eligibility criteria apply.

1 Federal student loan information was gathered in May 2019 from and a May 23, 2019 Electronic Announcement from Federal Student Aid, an office of the U.S. Department of Education.

2 This repayment example is based on a typical Smart Option Student Loan made to a freshman borrower who chooses a fixed rate and the Fixed Repayment Option for a $10,000 loan, with two disbursements, and a 8.88% fixed APR. It works out to 51 payments of $25.00, 119 payments of $162.06 and one payment of $120.23, for a Total Loan Cost of $20,680.37.

3 Interest rates for Fixed and Deferred Repayment Options are higher than interest rates for the Interest Repayment Option. You’re charged interest and your selected repayment option applies starting at disbursement, while in school and during your separation or grace period. When you enter principal and interest repayment, Unpaid Interest will be added to your loan’s Current Principal. Variable rates may increase over the life of the loan. Advertised variable rates reflect the starting range of rates and may vary outside of that range over the life of the loan. Advertised APRs assume a $10,000 loan to a freshman with no other Sallie Mae loans.

4 Borrower or cosigner must enroll in auto debit through Sallie Mae. The rate reduction benefit applies only during active repayment for as long as the Current Amount Due or Designated Amount is successfully withdrawn from the authorized bank account each month. This benefit may be suspended during periods of forbearance or deferment, if available for the loan.

5 Only the borrower may apply for cosigner release. Borrowers who meet the age of majority in their state may apply for cosigner release by providing proof of graduation (or completion of certification program), income, and U.S. citizenship or permanent residency (if your status has changed since you applied). In the last 12 months, the borrower must be current on all Sallie Mae serviced loans (including no hardship forbearances or modified repayment programs) and have paid ahead or made 12 on-time principal and interest payments on each loan requested for release. When the cosigner release application is processed, the borrower must demonstrate the ability to assume full responsibility of the loan(s) individually, and pass a credit review that demonstrates a satisfactory credit history including but not limited to no: open bankruptcy, open foreclosure, student loan(s) in default or 90 day delinquencies in the last 24 months. Requirements are subject to change.

6 If a student dies or becomes permanently and totally disabled, Sallie Mae will waive all remaining payments on the loan.

7 This information is not meant to provide tax advice. Consult with a tax advisor for education tax credit and deduction eligibility. For more information, see IRS Publication 970.

Information advertised valid as of .

Smart Option Student Loans are made by Sallie Mae Bank or a lender partner.