To qualify for a private loan, you’ll need to attend an eligible school and meet the lender’s age, education or citizenship requirements, as well as credit and income criteria. Undergraduate students usually need to apply with a creditworthy cosigner.
Many lenders let you check your rates with an online prequalification that won’t impact your credit (as opposed to a more in-depth hard credit inquiry). Compare offers from a few different lenders to find the lowest rate for your private student loan.
If you have a cosigner, they will likely need to submit this information too.
Most private lenders require a minimum credit score before approving you for a private student loan. If you have limited or bad credit, you can boost your chances of qualifying by applying with a cosigner. Even if you can qualify on your own, adding a creditworthy cosigner to your application could help secure better rates.
Note that your cosigner will hold equal responsibility for the loan, and their credit will suffer if your loan falls into delinquency or defaults. Some lenders allow you to release your cosigner after a certain period of on-time payments.
For more information on this, check out our guide to student loans for bad credit.
Historically, about 9 out of 10 private student loans are borrowed with cosigners — creditworthy individuals who agree to repay the debt if the primary borrower falls behind. That’s because teens and 20-somethings often don’t have an adequate credit history to meet the underwriting standards of banks, credit unions and online-only lenders.
Even if you’re a rare case who could qualify on your own, including a cosigner could potentially lower your interest rate. Make sure you and your cosigner understand the legal obligations of repayment before deciding to team up.
And if you prefer to apply alone, check out student loans without cosigner requirements.
Each lender sets its own minimum and maximum borrowing amounts. However, just because you can borrow up to your remaining cost of attendance doesn’t mean you should.
Your loan balance, interest rate and loan term (definitions below) can dramatically impact the overall costs of a private student loan.
When you take out a student loan, your balance is the amount you borrowed. As interest accumulates, your loan balance grows. You might have several student loan balances, depending on how many loans you took out.
When you borrow a student loan, you agree to pay back your borrowed amount, plus interest. With the exception of federal subsidized loans, interest starts racking up from day one.
Private student loans can come with fixed or variable interest rates. Variable rates often start lower than fixed ones, but they can drastically increase over time.
The term is the number of years it takes to repay your loan. Private loans are not eligible for federal repayment plans. Most private lenders let you choose a term of five to 20 years, though some have longer or shorter terms available.
Use the following questions to determine how much private funds you should borrow:
|Question||Where to find the answer|
|How much do I need to borrow?||Estimate higher education costs using tools like the College Scorecard (or your financial aid award letter, if you have one)|
|How much will my student loan cost?||Plug potential borrowing scenarios into student loan calculators|
|Can I afford to borrow that much?||Utilize free resources like the Bureau of Labor Statistics to project your postgraduate wages|
After applying for a private student loan, you should receive a formal approval or denial within days, sometimes hours. More likely, a customer service representative from your potential lender will follow up to provide a status update or request additional documentation.
If time is of the essence — perhaps your next semester or academic term is fast approaching — consult the preferred lenders on your list about how quickly you can expect an answer on your application. You might also consider emergency student loans for immediate financial needs.
U.S. law sets the federal student loan interest rates, which Congress then passes. The annual federal loan rates are based on 10-year Treasury notes plus a fixed increase. Each loan type has a predetermined loan cap in an effort to make interest rates reasonable for all borrowers. Furthermore, regardless of your credit score, everyone receives the same rate with federal student loans.
In contrast, private lenders utilize their own lending models to determine student loan interest rates.
A lender may consider the following factors when calculating your rate: