What It Means
A private student loanStudent loanMoney borrowed to pay for college or career school, repaid with interest after you leave school; it comes from the federal government or a private lender. See more is a loan for school costs made by a bank, credit union or other private lender. The lender usually checks your credit, often asks for a cosignerCosignerA person who signs a loan alongside the borrower and becomes legally responsible for repaying it if the borrower doesn't. See more, and sets your interest rateInterest rateThe yearly percentage a lender charges for borrowing money, not counting fees; the APR adds certain fees to show a fuller cost. See more from your credit historyCredit historyThe record of how you've handled credit over the years, as shown on your credit reports: which accounts you've had, for how long, and whether you paid on time. See more, the Consumer Financial Protection Bureau (CFPB) explains. Repayment follows the loan contract, so federal options such as income-driven plans and federal forgiveness programs don't apply.
Try It: Federal or Private? Sort Five Loan Features
For each feature, pick the kind of student loan it describes. Answers come from the CFPB and studentaid.gov.
Right. Most federal student loans need no credit check.
Not this one. Private lenders usually check your credit.
Right. A private lender prices the loan from your credit.
Not this one. Federal rates are set by law, the same for every borrower with that loan type.
Right. Income-driven plans are a federal program.
Not this one. Private loans follow their contract.
Right. Some private lenders offer cosigner release, usually with a credit check.
Not this one. Most federal loans need no cosigner at all.
Right. It's a federal program for federal loans.
Not this one. The CFPB says private loans lose that eligibility.
How People Say It
- "Federal aid didn't cover it all, so we took a private loan for the rest."
- "My dad had to cosign my private loans."
- "The private one has a variable rate."
The Breakdown
Worked example. Two students each borrow $20,000 privately and repay over 10 years. The rates are examples of how credit changes the price:
| Rate | Monthly payment | Total interest |
|---|---|---|
| 7% | $232.22 | $7,866.04 |
| 9% | $253.35 | $10,402.19 |
| 11% | $275.50 | $13,060.00 |
What the result means. Four points of rate add $43.28 a month and $5,193.96 over the life of this loan. That's why a cosigner with strong credit can change the offer, and why the CFPB notes students with little credit history tend to see higher rates.
What to compare between offers. Whether the rate is fixed or variable, any fees, when payments start, what help the lender offers if you lose income, and whether it releases a cosigner and on what conditions.
Good to Know
If you stop paying, the CFPB says a private lender can report the defaultLoan defaultFailing to repay a loan as the contract requires, usually after missed payments, which lets the lender use stronger ways to collect. See more to the credit bureaus, demand the whole balance at once, send the debt to collectors, and sue within your state's statute of limitations. A private lender can't take your tax refund the way the federal government can for a defaulted federal loanFederal student loanA student loan made by the U.S. Department of Education, with a fixed rate set by law and federal repayment plans and protections. See more. The CFPB also notes that some private lenders, though not all, discharge a loan when the borrower dies or becomes permanently disabled, so read that part of the contract, especially if someone cosigned.
FAQ
Should I take federal loans before private ones?
Federal loans come with income-driven repaymentIncome-driven repaymentA federal student loan repayment plan that sets your monthly payment from your income and family size instead of from your balance. See more, deferment, forbearance and forgiveness programs that private loans don't offer, and most need no credit check or cosigner. Many families use private loans only for what federal aid doesn't cover.
Can I get a private student loan without a cosigner?
It depends on your credit and income. The CFPB says private loans typically require both a credit check and a cosigner, and a student with a short credit history usually faces a higher rate without one.
Can private student loans be forgiven?
Federal forgiveness programs, such as Public Service Loan ForgivenessLoan forgivenessA program that cancels some or all of a loan's remaining balance once you meet its rules, most often a federal student loan program. See more, apply only to federal loans. A private loan follows its contract, and the CFPB notes that some lenders discharge the debt on death or permanent disability.
Do It in Buhata
Bills, Reminders
With Plus, add each private loan's payment to Bills, and if the rate is variable, set a Reminder to check it on each statement.
Open BuhataRelated Terms and Categories
- Student loan
Money borrowed to pay for college or career school, repaid with interest after you leave school; it comes from the federal government or a private lender.
- Federal student loan
A student loan made by the U.S. Department of Education, with a fixed rate set by law and federal repayment plans and protections.
- Cosigner
A person who signs a loan alongside the borrower and becomes legally responsible for repaying it if the borrower doesn't.
- Refinancing
Replacing a loan you already have with a new one, usually to get a lower rate, a different term or a different payment.
- Credit score
A three-digit number calculated from your credit report that lenders use to judge how likely you are to repay; common models run from 300 to 850.
- Variable interest rate
An interest rate that can rise or fall over the life of a loan or card because it's tied to an index, such as the prime rate, plus a set margin.
Sources
Consumer Financial Protection Bureau, "Options for repaying your federal and private student loans"; CFPB, "Should I consolidate or refinance my student loans?"; studentaid.gov, "Federal Versus Private Loans"; CFPB, "What happens if I default on a private student loan?"; CFPB, "Options for repaying your private education loan"
- www.consumerfinance.gov/paying-for-college/repay-student-debt/federal-and-private-student-loans
- www.consumerfinance.gov/ask-cfpb/should-i-consolidate-refinance-student-loans-en-561
- studentaid.gov/understand-aid/types/loans/federal-vs-private
- www.consumerfinance.gov/ask-cfpb/what-happens-if-i-default-on-a-private-student-loan-en-673
- www.consumerfinance.gov/paying-for-college/repay-student-debt/private-student-loans
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