When federal student aid and scholarships fall short of covering your educational expenses, private student loans can be a valuable resource to bridge the financial gap. Private student loans, offered by banks, credit unions, and online lenders, can provide additional funding to support your higher education journey. In this article, we will explore some of the best private student loans available, factors to consider when choosing a lender, and tips for responsible borrowing.
Top Private Student Loans for 2023
While the best private student loan varies depending on individual circumstances, here are some of the top lenders known for offering competitive rates, flexible terms, and excellent customer service:
- SoFi: SoFi is a leading online lender offering private student loans with no fees and competitive interest rates. They also provide additional benefits like career counseling and networking opportunities for borrowers.
- Discover Student Loans: Discover offers a variety of student loan options with competitive interest rates and repayment terms. They also have great customer service and provide rewards for good grades.
- Citizens Bank: Citizens Bank provides private student loans with options for both fixed and variable interest rates. They offer multi-year approval, allowing you to secure funding for multiple years of study.
- Sallie Mae: Sallie Mae is a well-known lender offering a range of private student loans with various repayment options to suit different financial needs.
- College Ave: College Ave offers customizable student loans with competitive rates and a user-friendly application process.
Factors to Consider When Choosing a Private Student Loan
Selecting the best private student loan requires careful consideration of several factors:
- Interest Rates: Compare interest rates offered by different lenders. Fixed rates provide stability, while variable rates may initially be lower but can fluctuate over time.
- Repayment Terms: Look for lenders offering flexible repayment terms that align with your financial situation. Longer terms may result in lower monthly payments but can lead to higher overall interest costs.
- Fees: Pay attention to any fees associated with the loan, such as origination fees or prepayment penalties. The best lenders often have minimal fees.
- Loan Limits: Check the maximum loan amount a lender is willing to offer to ensure it covers your educational expenses.
- Cosigner Options: If you have limited credit history or income, explore lenders offering cosigner release options after demonstrating responsible repayment.
- Customer Service: Research customer reviews and ratings to gauge the quality of customer service provided by the lender.
Tips for Responsible Borrowing
Taking out private student loans is a significant financial decision. Here are some tips to borrow responsibly:
- Maximize Federal Aid: Before turning to private loans, exhaust all options for federal student aid, grants, and scholarships.
- Borrow Only What You Need: Borrow only the amount necessary to cover your educational expenses. Avoid borrowing more than required to prevent unnecessary debt.
- Read the Fine Print: Carefully review the loan agreement, terms, and conditions before signing. Understand the interest rates, repayment terms, and any potential fees.
- Consider Repayment Options: Look for lenders offering repayment flexibility, such as deferment, forbearance, or income-based plans, in case you face financial difficulties in the future.
How do private student loans and federal student loans differ?
You apply for a federal student loan by submitting the FAFSA. Taking on a federal loan means you’re borrowing from the government. You apply for a private student loan through a bank, credit union or online lender.
Federal student loans only come with fixed interest rates — rates that are locked in for the life of the loan — that are set by Congress annually. Private lenders can offer fixed or variable rates that are based on your creditworthiness — and your co-signer’s if you have one. Federal loans also charge origination fees; private loans typically do not.
Borrowers of federal student loans get extra protections — like income-driven repayment and Public Service Loan Forgiveness — that private loans lack.
How do I choose a private college loan online?
Compare offers from multiple lenders including banks, credit unions, online companies and state-based lenders to find the lowest interest rate. Depending on the lender, you may be able to choose a fixed or a variable interest rate. A fixed rate stays the same throughout the life of a loan. A variable rate may start out lower than a fixed rate, but could increase or decrease over time depending on economic conditions.
Consider any borrower protections your private lender offers, including deferment and forbearance, as well as other repayment options. You may also have the option to choose your loan term, which means you could pay off your loan faster and with less interest by making higher payments or pay lower amounts with more interest over a longer period of time.
» MORE: Student Loan Repayment
How do I qualify for a private student loan?
Each lender will have its own requirements for taking out a loan. Credit score and income are taken into account for most student loans. Higher credit scores and incomes tend to get the best rates and are more likely to be approved for higher borrowing amounts. Since undergraduate borrowers are less likely to have established credit or income, lenders will usually require students to apply with a co-signer. Some lenders who have loans for borrowers without a co-signer will consider academic performance and income potential.
Lenders will often require you to attend a Title IV school, which means your school processes federal student aid. Some lenders don’t offer loans in certain states.
» MORE: student loan Loan limit
Can I get a private student loan with bad credit?
You’ll have a hard time finding a private student loan from a bank, credit union or online lender if you have bad credit. Federal student loans don’t require borrowers to demonstrate creditworthiness, so they’ll be your best option if you have bad credit. If you’ve already hit your limit on federal loans, you may be able to get a private student loan if you apply with a co-signer who has solid credit — typically scores in the high 600s or better.
» MORE: Federal Student Student loans
Will I need a co-signer for a private student loan?
If you have no income and no credit or bad credit, you’ll need a co-signer to get a private student loan. Without bills in your name, such as a credit card, car loan or utility, it’s hard to demonstrate that you can pay bills on time. Your co-signer will need a steady income and excellent credit scores, typically in the high 600s. Signing with a co-signer means they’re on the hook for your loan if you can no longer pay it.
Some private lenders will let students apply without a co-signer. Instead of basing your loan offer on your credit, they look at your academic performance and earning potential to determine your ability to pay back the debt.
» MORE: Discover student loan
How do I apply for a private student loan?
Each lender will have its own application requirements. You’ll usually need to provide documents that prove citizenship, identity and income along with school information, like cost of attendance or the financial aid award letter from your college.
As part of underwriting, you or your co-signer will need to show you have a credit score in the high 600s or higher, as well as cash flow to make loan payments. They’ll also look at your or your co-signer’s debt-to-income ratio to make sure you have the funds to pay a student loan bill in addition to any other bills in your name.
Private student loan interest rates
The NerdWallet team of student loans experts analyzed reported rates from 24 lenders over a period of 38 months. We considered four variables — average maximum fixed rates, average minimum fixed rates, average maximum variable rates and average minimum variable rates — for each lender on a month-over-month basis.
The average rates as of Apr. 19, 2023, were:
Minimum fixed interest rate – 5.87%.
Maximum fixed interest rate – 13.23%.
Minimum variable interest rate – 6.80%.
Maximum variable interest rate – 14.33%.
Average rates in general have continued to trend upward over the last 12 months. All average rates — except maximum fixed rates — have increased since last month.
The reported rates represent lenders’ advertised ranges. It’s best to prequalify with multiple lenders to ensure you accept the best rate available to you.
Lenders typically offer the lowest rates to those with the strongest financial profiles. Based on our analysis, less than 30% of borrowers are offered the lowest rate. That percentage includes companies that offer all borrowers the same rate. Excluding those companies, less than 18% of borrowers are offered the lowest rate.
Choosing the best private student loan requires thorough research and consideration of your individual financial circumstances. Compare interest rates, repayment terms, and benefits offered by different lenders to find the one that best fits your needs.
Remember to borrow responsibly, only taking out what is necessary, and exploring repayment options for a smoother financial journey. With the right private student loan, you can focus on your studies and pursue your higher education dreams with confidence