Getting federal student aid is the best way to kickstart the funding of your college education. Federal student loans, grants, and work-study jobs are all excellent ways to get the money you need to pay for tuition and all of the other expenses that come with college.
But with costs soaring for American students across the country, federal aid often isn’t enough to cover all your needs.
That’s where private student loans come in.
When you’ve exhausted all of your scholarship, grant, and federal student loan options and still come up short, working with a private student lender can help you get the funds you need.
Here are the best private student loan lenders of 2021 to help your search get started:
Credible is an online lending marketplace that connects borrowers to private lenders.
The company doesn’t do any of the lending itself. Instead, you’ll fill out an application, and the platform will match you with multiple lenders that are willing to work with you.
It can save you a lot of time comparing rates from various companies. And Credible does a soft pull on your credit, so you don’t have to worry about it affecting your credit history.
Overall, Credible is a great way for borrowers to access a network of online lenders by filling out a single application. It’s free for you to use, and the application process is simple. They also offer student loan refinancing options as well.
SoFi doesn’t provide loans directly to students, but they do offer parent loans. Fixed rates and variable rates both start low, and you can view current rates online.
You can also sign up for autopay, which gives a discount when you enroll. If you don’t, expect to pay slightly more on both types of rates.
According to SoFi, parents can save with their loan product compared to the Federal Direct Parent PLUS loan. Not only are their rates lower, but they also don’t charge an origination fee. However, SoFi doesn’t offer any income-contingent repayment plans as the federal PLUS loan does.
Unlike typical student loan companies, SoFi’s parent loans don’t include a deferment period, so you’ll begin making payments as soon as you get funded. The minimum you can borrow is $5,000 and goes up to the total cost of attendance (COA).
If you ever need another kind of loan offered by SoFi, you will receive a member rate discount of 0.125%. Another member perk is that you receive access to wealth advisors and career coaches.
Offering a broad range of student loans, Sallie Mae can fit a lot of different needs. You can get loans for both undergraduate and graduate programs, as well as parent loans if they’d rather take on the financial burden instead of the student.
What kind of interest rates can you expect?
They change regularly, but like other lenders, variable rate loans have a lower APR. Sallie Mae’s interest rates for high credit borrowers are often less than what you’d get with a direct federal student loan.
While you’re still in school, you can defer payments until after a six-month grace period upon graduation, but interest still accrues. Alternatively, you can make interest-only payments during your school years to help lower the financial burden.
Another option is to make a fixed payment during school and your grace period, which can save you money over time compared to the deferred payment option. It’s easy to apply for any student loan online with Sallie Mae, and you can receive a decision in about 15 minutes.
Not only does Discover offers loans for undergraduate and graduate students, as well as parents. It also rewards students for academic achievement.
You can earn a 1% cashback reward on each new loan when you earn a 3.0 GPA or higher. Discover student loans also have no fees, including no late fees. Plus, you can get a 0.25% interest rate reduction while enrolled in automatic payments.
So what are the specifics for Discover student loans?
Despite being slightly higher fixed-rate loans, you get a flexible repayment term, including forbearance for financial hardship and the ability to reduce your payments temporarily.
Another unique benefit is that Discover gives you ongoing access to loan specialists who can assist you at any time, day or night. So if you think you’ll have questions or feel insecure in the student loan process, this could be a worthwhile option for you.
For flexible private student loan options, consider Ascent. You can get either a tuition loan that requires a cosigner or an independent loan that’s just for undergraduate or graduate students.
Rates start quite low for private loans, with both fixed and variable rates available. Quotes are available on their website.
You can also receive a 0.25% – 2.00% interest rate reduction if you choose automatic payments on your monthly bill. Loan amounts range from $1,000 up to your cost of attendance, although your total loan amount can’t exceed $200,000.
This is a pretty low minimum, so if you need a smaller loan to bridge the gap in your financing, Ascent student loans may be a good fit.
Terms last 5, 7, 10, 12, or 15 years, but choose carefully because you can’t change the timeline once you receive the funds. While you’re still in school, you can choose to defer payments (with interest accruing, of course) or the interest-only repayment option.
Want to cut back on the amount of interest you pay over time?
Ascent also offers the ability to do a $25 minimum payment plan while you’re in school. It’s not a huge financial burden but can save you more compared to deferred payments.
They also just launched a 1% Cash Back at Graduation program.
After graduation, you can apply for forbearance if needed — something many private lenders don’t offer.
CommonBond offers student loans designed specifically for students, not their parents. You can find loans for both undergraduate and graduate programs, catering to a larger amount of student loan borrowers.
Since the loans aren’t for parents with a more established credit history and higher income levels, CommonBond’s rates are slightly higher. How much higher depends on whether you choose a fixed or variable interest rate loan. Check out their rates online.
Still, compared to the current federal student loan rates for graduate students, you might get a good deal.
Another factor to consider when applying for a CommonBond student loan is that you’ll need a cosigner. However, once you make two years of payments, you can apply for a release so that you’re the only borrower on the loan.
You’ll receive a six-month grace period after graduation, but your loan still gains interest during this time.
If you ever experience economic hardship, you may also apply for forbearance. While you never want to use that type of protection, it’s good to have the option in your back pocket.
Whether you’re headed to undergrad for the first time or tackling a career change by going back to grad school later on in life, College Ave can help you create a student loan that’s custom-made for your needs. Their straightforward loan application takes three minutes, and you’ll know if you’ve been approved instantly.
Loans are available both directly to students and parents and can pay up to 100% of the cost of college attendance, including those necessary “extras” like books and housing.
Loans are available with variable and fixed interest rates, ranging from 4.07% to 12.78% APR depending on your needs and creditworthiness. You can also qualify for an interest rate reduction if you set up automatic payments.
Deferred and interest-only repayment options are available while you’re enrolled in classes, and there are no fees to apply. The company can also help you refinance existing loans so you can take advantage of their low rates and easy-to-use interface.
One of the most frustrating and stressful parts of the student loan process is having to re-up your application year after year and not knowing for sure that you’ll have the funding you need in the future.
Citizens Bank offers a one-time, multi-year approval process that means you’ll be able to relax and focus on the important stuff: your schoolwork.
Citizens Bank’s loans carry no application, disbursement, or origination fees and offer repayment timelines between 5 and 15 years to best suit your individual financial needs and circumstances.
Undergraduates can borrow up to $100,000 (with higher loan tiers available to those pursuing post-graduate and specialized education), and it’s easy to add a cosigner if you’re a brand-new borrower.
Depending on your repayment strategy, loan total, and other factors, current rates shown on their site range from 2.90% to 12.04%.
When to Use a Private Student Loan
Step 1: Apply for Federal Aid
To ensure you’re getting the best funding for your college education, make sure you fill out the Free Application for Federal Student Aid (FAFSA). You need to do this every year you’re in school, not just for your freshman year.
Applying for the FAFSA offers need-based financing and can include several different types of aid. Grants are available, which you don’t need to repay as long as you continue to meet their eligibility criteria. This is obviously the best choice because it’s free money! But of course, it won’t cover your total cost of attendance.
Step 2: Apply for Federal Student Loans
While many private lenders are managing to offer interest rates that are somewhat competitive with federal loan rates, they can’t beat the flexible repayment options.
There are various income-driven repayment plans and student loan forgiveness for certain types of professions. A final type of aid offered by the federal government is the work-study program.
This lets students qualify for (usually) on-campus part-time jobs related to their area of study. You can also apply for scholarships through your college, corporations, and community organizations.
Step 3: Apply for Private Student Loans
Once you’ve exhausted all of these options and still come up short for your college funds, then it’s time to consider a private student loan.
It seems like a lot of work to apply for each type of student aid, but it’s an essential process.
Borrowing tens of thousands of dollars may not seem like a big deal right now, but those monthly bills are going to stick with you for a long time. So give yourself the time and space to maximize your aid so that you can minimize your financial load in the future.
How to Find the Best Private Student Loans
Determine Your Direct Needs
Once you determine that you need a private student loan to meet your college costs, start by deciding whether the loan will go under your name or your parents’.
For direct student loans, decide if you’ll have access to a cosigner (like a parent) or if you’ll take on the burden entirely on your own. Those decisions alone can narrow down your lender.
Next, think about what your income will be like when you’re attending school. Will you have a part-time job or ample savings on hand to take care of any payments due? If not, you may need to find a lender who offers deferred payment, even if it means accruing more interest.
Gauge Your Future Needs
You may also be interested in future forbearance options. No one wants to imagine themselves as going through financial hardship once they’ve earned their degree, but it’s a genuine possibility for anyone.
If you don’t have a strong financial safety net, you may benefit from choosing an online lender that offers repayment flexibility.
Predicting your future needs for student loan repayment is like gazing into a crystal ball, which we simply can’t do. So the wisest way to tackle the issue is to hope for the best but prepare for the worst.
You likely don’t know what your job situation or income will be like by the time you graduate, so try to buffer in as much flexibility as possible. Also, be careful with your spending and refrain from racking up unnecessary credit card debt. Your future self will thank you!
Choosing the Best Student Loan Lender
Not all lenders are created equally, so be sure to shop around so that you can find the best student loans for you. The things you’ll want to compare are fees, rates, and loan terms. For example, some lenders may charge an origination fee, which can decrease the funds you get from your loan amount.
The interest rate can be either fixed or variable. If you choose a fixed interest rate, you’ll never have to worry about your payments changing if you keep on top of your payments. However, your interest (and consequently, your monthly payments) can change regularly with a variable interest rate.
The loan term determines how long you’ll repay your private student loan. A shorter term saves you in interest over time but also results in higher monthly payments. Of course, you can always refinance student loans if your financial situation is different than you expected after you graduate.
Other Eligibility Factors for Private Student Loans
Another factor to consider when researching student loan lenders is what enrollment and academic standards they require. For example, you may need to maintain a certain enrollment status, such as half-time or full-time, to be eligible. Alternatively, you may have to achieve certain academic standards to keep receiving student loans each year.
Also, find out how the student lender treats repayment while you’re still in school. Sometimes you can defer payments altogether, but interest keeps accruing. That means you’ll graduate with a bigger loan balance than what you started with.
How to Apply for Private Student Loans
Applying for a private student loan is quite simple. Once you’ve narrowed down the list of banks, credit unions, and online lenders you’d like to work with, you can generally start the application process online. Expect to submit some basic personal information as well as details regarding your upcoming education costs.
You’ll most likely need the following information:
- Contact information
- Social security number
- School and program information, including your expected graduation date
- Requested loan amount and other financial aid you’ve received
- Current financial information, such as income
- Personal contacts
- Cosigner information
Applying with a Cosigner
Most undergraduate students will need to apply with a cosigner to qualify. If you have a cosigner (usually a parent), most lenders ask for their contact information and then reach out to the cosigner directly to get more details from them.
Once you submit your application, the lender will review your credit history and, if applicable, your cosigner’s. You’ll then receive a decision on your application. If you’re approved, you’ll see one or more offers.
You can compare how the interest rate and payment amount change with different term and repayment options. Pick one, sign the loan agreement, and your lender will disburse the funds directly to your school.
Frequently Asked Questions
What is a private student loan?
A private student loan is a loan made by either a bank, credit union, or state-based organization. The loan is not made by the U.S. government and does not require a FAFSA application.
What is the difference between federal and private student loans?
Federal Student Loans
Federal loans are made directly by the U.S. government. Payments aren’t due until after you graduate, and interest rates are fixed. No credit check is ever required (except for PLUS loans).
During the student loan repayment period, borrowers can change their payment plan if needed. Loan forgiveness is also possible after a certain amount of years has passed if the borrower works in public service.
Private Student Loans
With private student loans, the lender sets the terms and rates, not the government. Payments are often required while the borrower is still in school, and although you can defer payments, interest often still accrues. This increases the principal balance. As for interest rates, they can either be fixed or variable.
Private loans often require a cosigner, which usually lowers the interest rate. In addition, refinancing is always possible with a private student loan, and doing so can also reduce the interest rate and the monthly payments.
How do private student loans work?
Getting a private loan doesn’t require the student to submit a FAFSA application before applying. If approved, you can use the funds for any education-related expense.
Payments begin after graduation or when enrollment drops below part-time. For most lenders, the grace period for either option is six months. After the six-month grace period has elapsed, students are expected to make payments in full.
Usually, you have the option of deferment or forbearance until you have graduated, make interest-only payments, or make full payments while you’re still enrolled. Many borrowers choose the interest-only repayment plan, so their loan principal is smaller when they graduate.
What is the difference between certified and non-certified student loans?
A certified loan is distributed by a lender who talks directly with the borrower’s chosen college about their loan. Funds are sent directly to the college, and any remaining amount is then sent to the borrower by the college. Certified loans usually have lower interest rates than non-certified private loans and are often tax-deductible.
Uncertified student loans are distributed by lenders who are not in any contact with the borrower’s school. Instead, all money goes directly to the borrower, which they can use at their discretion. These types of loans usually have higher interest rates than certified student loans and are often not tax-deductible.
How do I find a private lender that works with my school?
Call your school’s financial services department and ask. Some schools have links to certified lenders on their websites, but they don’t always. If they don’t, call or email the financial services department for a list of certified private student loan lenders.
What are the advantages of applying for a private student loan with a creditworthy cosigner?
There are two advantages. The first advantage is that a cosigner can help you qualify for loans you would typically be denied for. The second advantage is that a cosigner can help you get a better interest rate, saving you money over time.
If you don’t like that your cosigner’s credit is at stake, most lenders allow for a cosigner release after a certain amount of on-time payments are made during the repayment period.
How long is a cosigner responsible for my loan?
It varies from lender to lender. Some lenders allow for cosigner release after 24 months of on-time payments, whereas others want 36 months. Some lenders also require that your gross annual income reach a minimum amount compared to your loan principal. This is not as common as the requirement for 24 months of making your payments on time.
Can I get a private student loan without a cosigner?
Most private lenders have minimum credit score requirements in the mid-600’s. So you can apply without a cosigner if you have a strong credit score. If you’ve been in the workforce and have made payments on credit cards or car loans, you may not need a cosigner. However, students who are fresh out of high school and have a zero payment history will more than likely need a cosigner to take out a private student loan.
How long does it take to get a student loan?
That depends on whether the loan is a certified or non-certified student loan. A certified loan first needs to be distributed to your school, and it can take 1-2 weeks before you receive the remaining funds.
Non-certified loans can be obtained much faster, sometimes in as little as a few business days. However, regardless of how quickly they can process your loan, always start loan shopping as early as you can.
How much can you get in private student loans?
It depends on the student loan lender. Some of the larger lenders can guarantee the total cost of attendance, no matter what it is. Smaller lenders usually have a cap, which is generally around $100,000 to $150,000. Verify with your school the total cost of attendance, and then use that number when lender shopping.
How is the interest calculated on my student loans?
Student loan interest is compounded daily. So each day, a little bit of interest is added to your loan principal. With every payment you make, interest is the first thing to get paid before any amount goes towards your loan principal.
To figure out your daily interest rate, first, take your rate and divide it by 365. For example, if your rate is 4.5%, your daily interest rate would be .012%. That amount on a $20,000 loan equals $2.40. So for the next day, your loan principal is then $20,002.40, which is then taken into account when calculating interest accrual.
How do I consolidate my student loans?
You must apply with a lender who offers loans large enough to pay off your existing student loan debt. If your credit profile is strong, you may qualify independently, but using a cosigner for a better rate and term is another option. In addition, many lenders offer refinancing options.
Other types of loans you can use include personal loans, home equity loans, and consolidation loans. Before you start applying to lenders, call your current lenders and ask what the payoff amount is. Add them all up. The total is what you need to borrow from a new lender.
The benefits to consolidating your student loans include:
- One low monthly payment
- Possible lower interest
- Possible better loan terms
Can I consolidate my private and federal student loans together?
Yes, you can, but it may not be to your advantage to do so. If you consolidate the two, you may miss out on potential student loan forgiveness programs, lower interest rates, and federal student loans’ unique payment options.
If your credit score is strong, it may be in your interest to do so, however, since private student loans revolve around credit scores. In addition, if you don’t mind giving up the benefits that come with federal loans, it’s possible to get a better rate than what you originally received on your student loan.
Can I refinance student loans?
Refinancing is similar to consolidating. To refinance, you’ll want to have a strong credit score and report. If your credit score is weak, it’s unlikely refinancing will be to your advantage.
However, if you have a good credit score, search for a lender who offers student loan refinancing. Compare private student loan rates and terms to what you currently have, and make sure your remaining principal doesn’t exceed their loan limits.
When should I apply for a private loan?
It’s always wise to apply as soon as possible, so you don’t miss any deadlines your school has, regardless of whether you’re working with a certified or non-certified lender.
Sometimes approval can take only minutes, while it can take as long as a few weeks in other cases. Therefore, if you plan to apply with a cosigner, make sure you give yourself and the banks a bare minimum of at least a month. This gives them enough time to request additional paperwork they may need and gives you enough time to find and collect it.
Even if you don’t have a cosigner, give yourself over a month for any potential back and forth with the lender. It’s also wise to wait to see the potential financial aid results from your FAFSA application.
How do private student loans get disbursed?
It depends on whether your lender is certified or non-certified with your school. If it’s certified, your lender will pay the school directly, and your school will send you any remaining balance once tuition and fees have been taken out.
If you’re working with a non-certified lender, the check will be sent directly to you, either through direct deposit or mail.
What are my repayment options?
Repayment options depend on the lender you choose. Overall, there are four repayment plans that most lenders tend to use:
- Deferment: With a deferment, the borrower pays nothing while they are enrolled in school. Interest still accrues, and the loan balance grows a little bit every day.
- Partial Interest: Some lenders offer a flat-rate monthly payment that covers part of the monthly interest. This keeps the balance growth to a minimum.
- Interest Only: The borrower pays only interest each month. This keeps the balance the same until the borrower is able to make full principal and interest payments.
- Principal and interest: This is a full monthly payment, which is the same payment the borrower would make after they graduate or drops below part-time enrollment.
How can I pay off my student loans faster?
There are various ways to do this.
- Make interest or principal and interest payments while you are still enrolled. This prevents your principal from growing while you are in school.
- Make an extra student loan payment whenever you can. To do this, always pay your minimum payment. After that, try to set aside as many extra payments as you can. Many people like to make an extra payment every three months, which accounts for a total of four extra payments each year.
Before you make the extra payment, be sure to write your lender and explain what you are doing with the extra money. If they don’t get the letter, they may just assume the money is to be put towards your next month’s payment rather than going wholly towards your principal.
- Make a large lump sum payment. Many people do this by putting their tax returns towards their student loans.
- Pay more than the minimum each month. Pay more than the minimum each month and your principal will go down more quickly. Interest accrues daily and is based on your principal. The sooner your principal goes down the sooner you’ll start paying less in interest.
- Refinance. By refinancing, you may get a lower interest rate and better loan term.
Student Loan Forgiveness
Unfortunately, student loan forgiveness does not exist for private student loans. Yes, some employers may pay off your student loan for working with them for a set period of time, but these jobs are in hard-to-fill areas. Other options that exist may hurt your credit score and are not recommended.
What happens if you default on private student loans?
Defaulting on a private student loan will negatively impact your credit score, first and foremost. From there, the lender may seek repayment from your cosigner if you have one. Then, more than likely, you’ll start receiving calls from a collection agency. It’s even possible the lender could demand you repay the full amount, take you to court, garnish your wages, or seize any assets you may have.