Best Private Student Loans for 2017
With the rising cost of a higher education, more and more students are taking out loans each year to help finance it. In fact, 7 out of 10 students who graduated in 2015 had student debt—with the average amount being just under $30,000.
While there are other ways to help pay for education, such as scholarships and grants, these are almost never nearly enough to cover the huge price tag of a college degree. This is where student loans come in.
Under most circumstances, you will have to pay back all of your student loans. It is crucial to have a plan on what you will do after college and how you will pay pack your student loans. Thinking about all of this before you even step foot in your freshman dorm will give you a leg up on other borrowers and will put you on track for a (relatively) stress-free repayment process.
It is easy to get caught up in the seemingly countless number of options when it comes to the best places for student loans. This guide was made to clear up the confusion in the private student loan market and to help students and their families make the best decision.
Best Private Student Loans Currently Available
4.70% - 11.76%
2.93% - 10.10%
Cost of Attendance
8, 10, 12, 15
5.74% - 11.85%
3.25% - 10.22%
Cost of Attendance
5 to 15
5.25% - 11.99%
3.12% - 11.22%
5, 10, 15
6.19% - 12.99%
4.18% - 11.26%
Up to 15
4.94% - 14.44%
3.48% - 12.73%
5, 12, 15
Top Private Student Loan Lenders of 2017
1) College Ave Student Loans
- Loans For: Undergrads, Grads, Parents
- Variable Rates: 2.93% - 10.10% (undergrad)
- Fixed Rates: 4.70% - 11.76% (undergrad)
- Repayment Terms: 8, 10, 12, 15 years
- Repayment Plans: Full, Interest Only, Flat, Deferred
- Fees: None
2) Sallie Mae
- Loans For: Undergrads, Grads, Parents, MBA, Dental/Medical Residency, Bar Study, Career Training
- Variable Rates: 3.25% - 10.22% (undergrad)
- Fixed Rates: 5.74% - 11.85% (undergrad)
- Repayment Terms: 5 - 15 years
- Repayment Plans: Interest Only, Fixed, Deferred
- Fees: None
- Loans For: Undergrads, Grads, Parents, Health Professions, Health/Medical Residency, Bar Study
- Variable Rates: 4.18% - 11.26% (undergrad)
- Fixed Rates: 6.19% - 12.99% (undergrad)
- Repayment Terms: Up to 15 years
- Repayment Plans: Full, Interest Only, Deferred
- Fees: None
- Loans For: Undergrads, Grads, International, Nursing
- Variable Rates: 3.48% - 12.73% (undergrad)
- Fixed Rates: 4.94% - 14.44% (undergrad)
- Repayment Terms: 5, 12, or 15 years
- Repayment Plans: Interest Only, Partial, Deferred
- Fees: None
The Best Private Student Loan Options for 2017
With so many choices out there, it can be difficult for even financially savvy borrowers to determine their best student loan options. What is the best place to obtain one after the government? How do you choose among the many options? How can I get a low interest student loan?
Many traditional brick-and-mortar financial institutions, including large national banks, offer student loans. So do local credit unions, online-only lenders, peer-to-peer lending sites, and companies best known for their credit card offerings. It takes time and effort to compare the best student loan interest rates and terms, but the payoff will be great. Even a small difference between rates can add up to a lot of money saved over the life of a loan. Make sure to take the time to research the best place before making any decisions.
Below you will find more detailed information about the top private student loan lenders in the industry.
College Ave Private Student Loans
College Ave Student Loans is one of the newest and best lenders in the industry. Founded just last year in 2015, College Ave’s goal is to help students finance their education with no tricks, gimmicks, or surprises. The company works with Liberty Bank, N.A. to fund the private educational loans they offer.
What College Ave Offers
College Ave is a private student loan lender that offers financing for undergraduate, graduate, and parent loans through its online platform. Depending on the needs of the borrower, student loans offered through College Ave have either a variable or fixed interest rate.
For undergraduate loans, variable interest rates range from 2.93% up to 10.10% while fixed interest rates range from 4.70% up to 11.76%.
Graduate loan variable interest rates range from 2.93% to 9.25%, and fixed rates range from 4.70% to 10.89%.
Parent loans through College Ave have variable interest rates ranging from 4.58% to 9.05% and fixed interest rates from 6.36% up to 10.82%.
Repayment may be structured over an 8, 10, 12, or 15 year term.
Borrowers who use College Ave's private student loans have the benefit of a simple application process, as well as the ability to configure repayment plans that fit their specific needs. Also, College Ave does not impose any application fees, nor a penalty for early repayment. Co-signers are allowed on College Ave's offerings should a borrower not qualify on his or her own. Borrowers who sign up for automatic repayment also receive a 0.25% interest rate discount.
College Ave Student Loans lets their borrowers decide among 4 repayment plans while still in school—full principal and interest, interest only, flat, or deferred.
In addition, College Ave allows its borrowers to choose among 8, 10, 12, and 15 year repayment terms. A shorter term means higher monthly payments but a lower interest rate—meaning you will pay less over the life of your loan. A longer term will allow for lower monthly payments but a higher interest rate. Payments may be more manageable, but you will pay more in the long run.
College Ave requires borrowers to be at least the age of majority in their state of residence, as well as a US citizen or permanent resident at the time of application. While anyone may apply, borrowers who qualify for a private student loan with College Ave must have strong credit history and score, or a co-signer who has sufficient credit. Applicants must be enrolled or have a plan to enroll in a college or university that meets certain eligibility criteria, as well.
To apply through College Ave, simply visit their website on your computer or mobile device. There application is relatively simple and only takes around 15 minutes. If approved, the money will be sent directly to the college you plan to attend. You will be able to access these funds after you set up all of the accounts with your school.
Though College Ave is one of the newest lenders around, they are also one of the best private lenders and one of the best places for student loans, in general.
Sallie Mae Private Student Loans
For more than 40 years, Sallie Mae has been a company focused on helping American students and families make higher education a reality. The company began as a government-sponsored enterprise offering assistance with public education funding solutions but went through the privatization process more than a decade ago. Currently, Sallie Mae offers a variety of college-focused saving and lending products, with private student loans (those not funded or serviced by the Department of Education) comprising its largest product pool. These provide a method for students to borrow for higher education costs when federal funding is exhausted or otherwise not available.
What Sallie Mae Offers
Private student loans offered by Sallie Mae are available for undergraduate and graduate students, or parents helping their college-bound children fund education, all of which fall under the Smart Option Student Loan program. Through the Smart Option Student Loan offering, students or parents can apply for student loans starting at $1,000 and extending up to the full amount of the education costs for an accredited school. Interest rates are either variable or fixed, with variable rates currently ranging from 3.25% to 10.22% and fixed currently ranging from 5.74% and 11.85%. Variable loans may initially provide a lower interest rate, but that rate may increase over time as interest rates rise. Sallie Mae also offers loans for MBA students, parents, career training, and dental and medical school.
Students and parents who borrow from Sallie Mae to fund education objectives have numerous benefits. First, borrowers have the option of enlisting the help of a co-signer when credit is not ideal, providing the potential for a lower interest rate or more affordable repayment terms. Additionally, Sallie Mae does not impose an origination fee or an early repayment penalty. Also, borrowers have the ability to track their personal credit score at no cost through the Sallie Mae website and the option to repay while in school to help lower the total cost of borrowing over time.
Repayment options for Smart Option Student Loans can be structured as a deferred repayment, which has no payment requirement during school or for a 6-month grace period after school, or a fixed repayment option, which requires a $25 monthly payment during school and in the six-month grace period. An interest repayment option may also be selected, which requires the borrower to pay interest accumulating month during school and during the 6-month grace period. Once the grace period ends for each repayment option, principal and interest payments are due until the loan is repaid in full.
Borrowers can choose a repayment length of anywhere from 5 to 15 years.
Sallie Mae requires borrowers to qualify for a private student loan based on credit score, history, and current or potential income. When credit is not strong, a cosigner may be added to help the original borrower qualify or secure a lower interest rate. A cosigner can request to be released from the loan upon graduation, when 12 on-time principal and interest payments are made, and when credit is strong for the remaining borrower.
When in repayment, borrowers can receive a 0.25% interest rate discount for establishing auto-payment each month. A free FICO credit score is provided for all borrowers once per month, and a mobile app is available for those who want to check their balance or make payments on the go. For all Smart Option Student Loans, borrowers do not pay origination fees, nor is there a pre-payment penalty should the balance be paid off prior to its maturity date.
The application process for a Sallie Mae private student loan requires all borrowers to provide the following information:
· Current residential address
· Social security number and date of birth
· School information, like enrollment status and course of study
· Requested amount
· Employment information, if applicable
· Financial information, like bank account statements and rent or mortgage payment
· Two personal references
This information is submitted online, and then Sallie Mae conducts an evaluation of borrower credit history and score. When an application is approved, the primary borrower determines the best-fit interest rate (variable or fixed) and the desired repayment option. The terms of the new private student loan are then accepted by the primary borrower and any cosigners electronically, and the school is contacted for verification of enrollment and cost.
PNC Private Student Loans
PNC Bank is one of the largest financial institutions in the United States offering personal and business banking products. Recently, PNC began offering private student loans to help undergraduate and graduate students fund college expenses through affordable borrowing.
What PNC Offers
PNC offers private student loans to those pursuing an undergraduate or graduate degree, a health care or medical professional degree, and individuals studying for a bar exam.
Private student financing provided by PNC has either a variable or fixed rate, depending on the borrower’s preference, with variable rates ranging from 4.18% to 11.26% and fixed rates ranging from 6.19% to 12.99%. A minimum loan amount of $2,000 is required and maximum funding depends on the total school-certified cost of attendance. Loan repayment terms can extend up to 15 years.
Students can borrow up to the full amount of school-related expenses for any degree or professional education program. The money will be paid directly to the school at which the student is or plans to be enrolled.
PNC Bank does not charge application or origination fees for applicants or cosigners, and no pre-payment penalties are assessed. Borrowers have the opportunity to receive a 0.50% interest rate discount when payments are automatically deducted from a checking or savings account. Should a cosigner be necessary at the time of application to reduce the interest rate or to qualify for the loan, a cosigner release may be requested once 48 consecutive monthly payments are made on time. PNC provides a vast library of resources relating to funding college expenses, planning for college itself, and managing personal finances while in repayment on its website.
Private student loans through PNC Bank can have the repayment period extended to as long as 15 years after payments begin, depending on the amount of the balance and preference of the borrower. Borrowers can opt for a deferred repayment program which does not require payment during school and 6 months after graduation, or an in-school interest repayment program can be selected that requires a small monthly payment starting as soon as the loan is funded.
Borrowers can choose a repayment plan of up to 15 years.
To qualify for a PNC private student loan, individuals must be an undergraduate or graduate student enrolled at least half-time in an eligible institution. All borrowers must be US citizens and have lived in the US for the last 2 years. Credit requirements include at least 2 years of satisfactory credit history, as well as 2 years of continuous income and employment history. Proof of current income is also required at the time of application.
Applying for a PNC private student loan is done online after a borrower has completed the FAFSA and received an award letter from his or her chosen school. Information including name, requested amount, and resident state is entered as the first step of the application process, followed by a preliminary decision on available offers from PNC. After an offer is selected, PNC will verify employment, income, credit history, and school attendance and costs before disbursing the funds on behalf of the borrower.
Ascent Student Loans
Ascent is one of the newer private student loan lenders on the blocks - but that doesn't mean they don't have good offerings! Below we take a look into what the company offers.
What Ascent Offers
Private student loans offered by Ascent are available for undergraduate and graduate students with or without a co-signer. Interest rates can be variable or fixed at the discretion of the borrower. Fixed interest rates without a co-signer range from 5.44% to 14.44%, with variable rates ranging from 3.98% to 12.73%. For loans with a co-signer, fixed interest rates range from 4.94% to 11.44%, and variable rates range from 3.48% to 9.72%. The minimum amount is $1,000 and the maximum is $200,000 aggregated over time.
Student borrowers have a variety of ways to save when using Ascent to finance their education, including no penalties for early repayment and no origination, application, or disbursement fees. Additionally, borrowers who establish automatic repayment for their student loans may receive an interest rate discount of 0.25%. Borrowers may also request their co-signer be released from the loan after 24 on-time payments are made consecutively.
Ascent private student loans can be repaid over the course of 5, 12, or 15 years, and a range of repayment options are available. In-school interest-only payments are available for student borrowers who want to start repayment while enrolled in school, and deferred repayment is an option for those who want a six-month grace period before payments begin after leaving school. A $25 minimum payment plan is also available while student borrowers are enrolled at least half-time in a degree program.
Students enrolled at least half-time in an eligible college or university are eligible to apply for private student financing through Ascent. All borrowers, including co-signers, must be US citizens or permanent residents to qualify, and they must be at least the age of majority in their resident state. Each applicant is evaluated by Ascent in terms of credit history and score, selected school, degree program, graduation date, and cost of attendance.
Discover Private Student Loans
Discover is widely known as a credit card issuer with a strong rewards program, but in recent years, the powerhouse financial institution has branched out to the student loan arena.
What Discover Offers
Discover makes private student loans available to graduate, undergraduate, MBA, medical, and law school students, as well as students who have graduated and want to consolidate their federal student loans. Private student loans can be beneficial to current or future students when federal student loans are not available or when consolidation presents an opportunity to lower the cost of borrowing.
Private student loans offered by Discover are available from $1,000 up to the full amount of the school-certified cost of attendance for undergraduate, graduate, or specialty post-graduate programs. Interest rates are either variable or fixed, depending on the preferences of the borrower. Variable interest rates for Discover private student loans currently range from 3.99% to 9.99% while fixed interest rates currently range from 6.49% to 12.49%.
Private student loans offered through Discover have two distinct repayment plan options: in-school and deferred. In-school repayment plans require a $25 fixed monthly payment while a student borrower is enrolled at least half-time in an eligible degree program. Deferred repayment allows student borrowers to wait to begin paying a fixed monthly amount toward their Discover student loans until 6 months after graduation or enrollment drops below half-time. Repayment may extend as long as 15 years, depending on the amount borrowed, although there is no prepayment penalty if the balance is paid off before the end of the term.
Differing from some lenders, Discover offers a 1% cash back reward when a student’s grades are reported as a 3.0 GPA or higher. Additionally, a graduation reward is available for students who graduate from a degree program that a loan was used to fund, up to 2% of the original loan amount. The reward programs from Discover are based on the amount of the loan funded, and they are only available for a short period of time after the qualifying event takes place. Through the Discover website, borrowers and cosigners have a variety of educational resources to help them manage borrowing, repayment, and balancing personal finances.
All borrowers applying for a private student loan through Discover must qualify based on a credit check, but if credit is less than ideal, a cosigner may be used to qualify. Cosigners are responsible for the private student loan for as long as a balance remains unpaid. Borrowers have the option to receive a 0.25% interest rate reduction when automatic debits are created in repayment, and Discover does not charge application, origination, or pre-payment fees for any of its offerings.
LendKey Private Student Loans
Most students and their parents have a need to borrow for education-related expenses when it comes to attending college or earning a professional degree. While the Department of Education offers student funding through the federal government, private student loan lenders have become more popular in recent years given the potential for borrowers to lower the total cost of attending college. LendKey, an online lending portal, combines offers from multiple private student loan lenders, including local banks and credit unions, to make the process easy for students searching. On top of this, LendKey offers refinancing and consolidation as an additional service to federal and private borrowers who are out of college.
What LendKey Offers
Through its online platform, LendKey provides borrowers access to more than 13,000 community financial institutions that put affordable education funding ahead of corporate profits. The lenders that utilize LendKey’s marketplace platform currently offer private student loans with fixed interest rates as low as 3.63%.
The total amount of funding varies from lender to lender, but the majority of credit unions and local lenders have a minimum loan of $1,000 and a maximum of up to the total education-related costs accredited by the school where the funds will be used. Repayment terms also vary based on the lender selected and the aggregate amount borrowed.
Each credit union and community bank lender that is part of the LendKey network offers different repayment plans to student loan borrowers. Depending on the loan amount, repayment may extend for more than 10 years, but all repayment plans offer a predictable monthly payment that does not change. LendKey's partners do offer in-school payment options as well.
LendKey is committed to providing affordable education funding options for student loan borrowers by including community-focused financial institutions in its lender lineup. Most credit union lenders available through LendKey offer interest rate discounts when automatic payments are established from a checking or savings account.
Another way LendKey encourages affordable student loan borrowers is through an interest rate reduction of up to 1% once the full repayment period has been entered and have paid off at least 10% of the principal balance. Additionally, LendKey and its lenders do not charge origination fees or application fees, and there are no pre-payment penalties assessed if a borrower repays a loan in full before the original maturity date.
Any cosigners on a private student loan may request for cosigner release based on the requirements laid out by the lender selected. For borrowers and cosigners wanting to understand their options for repayment better, how to afford the cost of attending college, or general money management tips and tricks, LendKey offers a vast online resource that includes educational material and calculators at no cost.
Although lenders do require a credit check for private student loan borrowers, when their credit history or score is less than perfect, having a cosigner is encouraged. Both the initial borrower and the cosigner can complete an online application through LendKey in a matter or minutes, and receive a variety of offers from credit unions offering private student loans in the same amount of time.
The private student loan application process through LendKey is completed online, starting with the borrower identifying the amount of funding they need for education-related expenses. Borrowers also indicate their credit history (excellent, good, or fair) and the state in which they live so that appropriate offers can be populated. After this initial information is entered, LendKey compiles student loan options from various lenders along with the repayment plans and interest rates. Once a selection is made, borrowers enter their personal information which is then transmitted to LendKey which then verifies the school information, income of the borrower, and credit history. Approval may be granted to qualified student borrowers after this step.
SunTrust Private Student Loans
As one of the largest personal banks operating in the United States, SunTrust Bank has been a well-known name in banking since its start in 1891. This bank offers a variety of deposit accounts, mortgage lending, personal loans, and most recently, private student loans. Under its education funding arm, SunTrust gives borrowers in both undergraduate and graduate degree programs the ability to supplement federal student loans while they are in school. Additionally, borrowers who want to consolidate and refinance federal student loans to achieve more manageable repayment or lower interest rates may have that option through SunTrust private student loans.
What SunTrust Offers
Private student loans offered through SunTrust Bank are available to undergraduate and graduate students for an amount as little as $1,001 and up to $65,000 per year or an aggregate loan maximum of $150,000.
Private student loans offered through SunTrust are available to both undergraduate and graduate-level students enrolled at least part-time. Interest rates are based on the creditworthiness of each borrower but are offered as either fixed or variable for the life of the loan.
Undergraduate loan variable interest rates range from 2.751% to 9.589%, while graduate loan variable rates range from 2.751% to 7.808%. Fixed rates for both undergraduate and graduate students can be as low as 4.751%, but can be as high as 11.044% for undergraduate students and 9.314% for graduate students. The minimum loan amount is $1,001 for both graduate and undergraduate private student loans through SunTrust.
Borrowers who use SunTrust to fund their education-related expenses have a variety of repayment options. 1) In-school deferment - where no payments are due while a student is enrolled at least half-time. 2) Immediate repayment - where payments of principal and interest begin as soon as the loan is funded. 3) Partial interest - where $25 of interest is paid during school enrollment are all available. 4) Interest-only repayment - an option for those who want to begin repaying their student loans while enrolled in school by paying any accrued interest. Repayment terms can be as short as 7 years, but may also be extended up to 10 or 15 years depending on the loan amount and borrower needs.
SunTrust offers an array of added benefits for private student loan borrowers, including up to a 0.50% interest rate reduction for borrowers who establish automatic payments from a checking or savings account. Additionally, a graduation reward equal to 1% of the principal balance of a SunTrust private student loan is available once a borrower graduates from the degree program for which the loan proceeds were used.
SunTrust does not charge application or origination fees for new applicants, and there are no pre-payment penalties assessed should a loan be repaid prior to its final maturity date. Also, borrowers who become fully and permanently disabled during repayment may request for the remaining balance to be discharged. Borrowers can learn more about how to adequately plan for college, manage their personal finances, and estimate the cost of attendance through the SunTrust website.
Student loan borrowers must qualify for a SunTrust private student loan based on a check of their credit. If a borrower is unable to qualify for a loan on his or her own, a cosigner may be added to improve the chance of approval or to lower the initial interest rate offered. Once 48 consecutive, on-time monthly payments are received, the borrower can request for a cosigner to be released from the loan.
The application for a SunTrust private student loan is completed online, starting with the information about the location and the name of the selected school. Borrowers must also indicate if the loan is intended for graduate or undergraduate expenses and if a co-signer will also be applying. Details about a borrower’s resident state, address, social security number, date of birth, income, and employment are all required as part of the application process. Once SunTrust has received all applicable information, a decision about the amount, interest rate, and repayment plan options available to the borrower are provided online.
U-fi Private Student Loans
U-fi Student Loans was built in 2015 on the foundation of NelNet, who has been in the student loan industry for 35 years. U-fi’s mission is to “help students and recent graduates reach their educational goals and make smart financial decisions”. To accomplish this mission, they offer competitive rates, financial resources, and more.
What U-fi Offers
As a private student loan lender, U-fi offers loans for the purpose of financing undergraduate, graduate, parent, residency, and bar exam expenses. Private student loans offered to borrowers through U-fi are underwritten by partner lenders, and the interest rates vary depending on the lender selected. Most private student loan lenders that work with U-fi offer both variable and fixed interest rates.
There are three repayment plans that U-fi offers—Immediate Repayment, Interest-Only Repayment, and Deferred Repayment. For the Deferred Repayment option, borrowers aren’t required to start making payments until 6 months after graduation. Finally, U-fi Student Loans offers repayment terms of 5, 10, and 15-years.
All borrowers wanting to apply for a student loan through U-fi are required to submit personal information relating to residency, income, employment, and credit history. Borrowers are eligible for a private student loan for up to 100% of the school-certified cost of attendance. Those who do not qualify as an individual borrower may apply with a co-signer who has a stable income or strong credit.
To apply for a private loan through U-fi, visit their website.
Citizens Bank Private Student Loans
Citizens Bank is a nationally recognized bank offering a variety of financial services. Like most of their other products, Citizens Bank offers great private student loans. To find out more, read below.
What Citizens Bank Offers
Citizens Bank offers private student loans to individuals who plan to complete an undergraduate, graduate, business, law, general healthcare, or healthcare professional degree program. Total loan amounts vary depending on the total cost of attendance for the selected degree, but the minimum loan amount is $1,000. Interest rates for Citizens Bank private student loans are either variable or fixed, based on the preference of the borrower, with variable rates ranging from 3.12% to 11.22% and fixed rates from 5.25% to 11.99%.
What Citizens Bank Offers
Student loan borrowers who use Citizens Bank have several options for repayment. In-school payments are available where the borrower pays interest only while completing a degree program, and deferring payments until a student is no longer enrolled is also an option. Private student loans from Citizens Bank are available with a 5, 10, or 15 year repayment term, depending on the loan amount and preference of the borrower.
Citizens Bank is unique in that borrowers have the option to apply for a multi-year approval, meaning funding can be secured for additional years without impacting credit. Additionally, Citizens Bank allows borrowers to enlist the help of a co-signer at the time of application if needed. Student loan borrowers also save by not paying any origination, application, or disbursement fees, and they have access to an interest rate discount of up to 0.50% by meeting certain criteria.
Citizens Bank requires all applicants to be US citizens or permanent residents, and they must be enrolled at least half-time in a degree program at an eligible institution. Additionally, borrowers must have strong credit history and score, and they must be at least the age of majority in their resident state. International students are also eligible to apply for a private student loan through Citizens Bank when a US citizen or permanent resident is listed as a co-signer.
Applications for Citizens Bank private student loans are submitted online. Borrowers must provide the following information as part of the process:
· Name and address
· Date of birth and social security number
· Recent pay stub or other proof of income
· Monthly housing payment
· Name of employer and length of employment
· School name
· Personal references
Co-signers must also provide this information at the time of application. Once the online application is submitted, Citizens Bank reviews the information to determine loan eligibility, amount, and applicable interest rate.
Federal Student Loans vs. Private Student Loans
There are two types of educational loans—federal and private. Each of these have their own perks and downfalls but both can help students and their families pay for their higher education. It is important to understand both before determining which is best for you. Though the government is typically considered the best place for student loans, private lenders do have some benefits as well. You can see the main differences between federal and private student loans in the table below.
Private Student Loans
Federal Student Loans
Private Bank or Lender
Variable or Fixed
2.751% - 12.99%
0 to 15 years
10 years (Standard plan)
Can use cosigner
Cannot use cosigner
Varies by lender
Typically have the best
Federal student loans are given by the Department of Education, which as mentioned, is typically considered the best place for student loans. These usually have the lowest interest rates. In order to obtain these, students and their parents must fill out the Free Application for Federal Student Aid, or the FAFSA. This form takes in basic information about the financial situation of families, such as income. Based off of this, the government determines the Expected Family Contribution, or EFC for short.
After the EFC is calculated, the government may offer students grants, scholarships, and/or loans. The lower the EFC, the more likely students are to receive need-based help in the form of scholarships and grants. Everyone who fills out the FAFSA will be offered some type of federal educational loan.
There are two main categories of federal student loans—subsidized and unsubsidized. Students with a low EFC are typically offered subsidized loans. For these, the government pays the accrued interest while the student is in school. This means that the principal will stay the same as long as the borrower is enrolled. The government does not pay the interest on unsubsidized loans, leaving students and their families responsible for paying it. These are typically reserved for families who can afford to contribute more towards tuition payments.
As of June of 2016, most federal student loans have an interest rate of 3.76% for undergraduates. These are low interest student loans that private lenders typically can't compete with. This rate is typically lower than what is offered by private lenders. Usually families only turn to private student debt after they have exhausted all of their federal options.
Banks, credit unions, and private lenders all may offer private student financing. The main difference of private student loans is that they are, in most cases, based solely on the credit of the borrower and, if applicable, his or her cosigner. Private lenders perform credit checks to determine if customers are eligible and, if they are, what their interest rates are.
So now you know the federal government is, in most cases, the best place for student loans. After you use all federal student loans, you can then turn to private student loans. In the following sections, we will go over more about how these work, how to apply for them, and some of the top lenders.
See the following video for a quick overview of student loans:
All About Private Student Loans
The amount of private student loans given out each year has skyrocketed in the past decade, as compared to federal student loans. After the government, private banks and lenders are the next best place for college financing. On average in the past decade, private student loan volume has increased by about 30% a year while federal volume has only grown by 8% annually. With these current rates, it is expected that more private loans will be given out than federal loans by 2030.
Private educational loans are available to those pursuing associate’s, undergraduate, graduate, and professional degrees. Borrowers can use the money for any cost associated with attending college including—but not limited to—tuition, room and board, books, and technology. It is the borrower’s choice to decide how he or she spends the money; so using it only for what is absolutely necessary is essential.
Private Student Loan Interest Rates
Most private lenders offer two types of interest rates—fixed and variable. Fixed rates are considered to be safer as they stay the same over the life of the loan. These rates are usually initially higher than variable interest rates because they do not change over the life of the loan. If you take out a loan with a fixed interest rate of 8%, you will pay 8% forever. The best private student loans are the ones with the lowest interest rates.
Variable interest rates, alternatively, start off as more low interest student loans but fluctuate with the market. Because loans of this type are more of a gamble for the borrower, the rate is initially lower. Depending on the market, however, they may be higher than fixed rates at times.
Low interest student loan rates usually start around 2% for extremely qualified borrowers and may go as high as 12% for those with a subpar credit history. Each lender has its own criteria for judging an applicant, however, and there is no common formula that could tell you what your interest rates would be.
Private student loan interest rates will also vary based on how long you want to repay your obligation. The shorter the repayment term, the lower the interest rate, and vice-versa. Though there are different benefits with different lenders, the best private student loan for you is typically the one with the lowest interest rate. Low interest student loans cost less over time and are always the best option.
How Are Private Student Loan Interest Rates is Determined
Unlike their federal counterparts, private loans are typically shopped for, and a borrower can expect a lot of choices. There are many companies and financial institutions out there offering private student loans. Even peer-to-peer lending has emerged as a marketplace for connecting would-be borrowers with interested private lenders, some of whom are simply other individuals looking for a good rate of return on their investment.
Shopping for a private student financing involves a lot of comparison shopping among various lenders. The interest rates offered to a particular borrower might vary greatly from lender to lender. The factors that will have the greatest impact on interest rates will be the borrower’s credit score and credit history, which will often be referred to together simply as “creditworthiness.” The higher your credit score, the more likely you are to receive a low interest rate student loan.
A private lender may also request information about the borrower’s income, family and housing situation, college graduation date, major, or job history – especially when a borrower is using peer-to-peer lending websites. The length or term of the loan can also have an impact on the rate. Shorter terms tend to have smaller interest rates than longer terms, because the borrower is committing to repaying the loan back quicker. Low interest student loans are offered to those who are the most qualified.
Although the rates available to a borrower will depend upon the borrower’s creditworthiness and personal factors, the market also has an effect on private student loan interest rates. Student loans, like other types of private lending, are tied to the ebb and flow of the financial market. The initial available rate on both fixed and variable interest rates are subject to change throughout the year according to how the market is doing. This is true even regarding rates offered by a single lender. That’s why it is so important for a borrower to comparison shop various rates immediately prior to choosing a lender.
How Fixed and Variable Private Student Loan Interest Rates are Different
Interest is the money a lender charges for lending to a borrower, but it’s important to understand the difference between getting a fixed interest rate or a variable interest rate. The difference is rather simple, although determining which is a better deal in the long run can be rather difficult.
When a borrower receives a fixed interest rate, their rate generally will never change over the life of their loan. (One exception to this may be if the terms provide that the rate rises after a default by the borrower.) When borrowing a loan for $10,000 at a fixed 5% interest rate, the borrower will pay around $500 in interest over 12 months, assuming that no principal is paid back during the year.
On the other hand, a variable interest rate is not fixed over the life of the loan, and is typically tied to a financial index, which itself is a measure of how well stocks, bonds, and other market conditions are doing. The variable rate shadows the ups and downs of shopping for an initial interest rate. When the market is doing well, the rate may be lower. When the market dives, the rate will go up. This is why these start off with lower interest rates.
Borrowers who choose variable interest rates can often get their loan at a more attractive initial rate than they could get with a fixed interest rate loan. However, they are taking a gamble that their average interest rate over the life of the variable interest rate loan will even out to a lower rate than the available fixed rate loan.
Or, they may plan to take out a variable rate loan in hopes that the market will stay strong for several years, then refinance to a fixed rate before they see a significant rise in their variable rate. Borrowers who chose this type must be prepared for their monthly payment amount to fluctuate over the life of the loan. If a borrower does chose a variable interest rate, they should seek out a lender that puts a cap in the terms on how high the rate can rise. Otherwise, the only applicable limit could be state usury laws.
Rising Interest Rates and Their Impact on Private Borrowers
While interest rates have been low for the past several years, they are just now beginning to rise. Borrowers seeking out new loans should expect the available rates to slowly go up over the next several years if the current trend continues. Those who already hold loans and have variable interest rates should expect their monthly payments to become higher the next time their adjustable rate is calculated. For those who can, it is a smart move to consider refinancing variable rate loans into fixed rate loans before they see this jump in payments.
Private Student Loan Eligibility
Unfortunately, not everyone is eligible to take on private educational debt. Because eligibility is based off of credit worthiness as opposed to need, many families are offered considerably high interest rates or are denied altogether. Very few applicants are offered the best private student loans with the lowest interest rates.
As mentioned before, private educational lenders run a credit check to determine an applicant’s eligibility. A credit score is based on five things: payment history, credit utilization, length of credit history, new credit, and credit mix. Out of the five, payment history makes up 35% of the credit score. Someone with a good payment history makes on-time payments towards his or her debt each month—including credit cards, mortgages, and student loans.
Though there are no strict requirements for who is deemed eligible to take on private educational debt, the average credit score is 687 on a scale ranging from 330 to 830. If you are well below the average, you will most likely not qualify.
Lenders may be more willing to work with borrowers with low credit scores or if they have a cosigner with a solid credit history. If you want to be offered the best private student loan interest rates, you need to have excellent credit, or a cosigner with excellent credit. In the following section, we will go over what a cosigner is and how they can help you get a student loan.
What is a Cosigner?
A cosigner is someone who signs a loan agreement alongside the student. By cosigning, this person is taking on responsibility for the loan if the student cannot repay it. Both the student and his or her cosigner are held accountable for this repayment and both of their credits will be negatively affected if it doesn’t happen. Cosigners can often help you receive a low interest student loan because it is less risky for the lender.
A cosigner is usually a parent, guardian, other family member, or another trusted adult. Because private educational loans are based on credit, it is important that this person has a good credit score.
Many lenders won’t let a student take on educational debt without a cosigner. Out of all of the private loans given out, 90% of them are co-signed. If you are unable to find someone who is willing or eligible to cosign your loan, check out our guide to student loans without a cosigner.
If you don’t have a cosigner, you may still be eligible for a private educational loan if you meet the following:
- Be a U.S. citizen
- Have a solid credit history, typically 660 or above
- Have a good income, typically at least $25,000 annually
Though meeting the above qualifications may help you obtain a private loan without a cosigner, nothing is guaranteed. If you lower the amount of money you are asking for, you will be more likely to be approved for a loan without a cosigner. The best places for student loans make the cosigner process easy to understand and make it easy to apply with a cosigner.
Lenders want to be assured that someone will pay back the debt, and often students have little to no credit history and aren’t employed while attending college. This makes the average college student a credit risk. In fact, many lenders will state outright that applicants should identify a cosigner before they try to apply, and submit a application from both the borrower and the cosigner in the first application. This increases their chances of being accepted by the lender, and of being offered a lower interest rate. Typically, you will be offered the best private student loans if you use a creditworthy cosigner. Having a cosigner really increases your chances of being offered a low interest private student loan.
Other borrowers don’t need to have a cosigner, but choose to use one in order to get a lower rate than they otherwise could. A lender is fine with that, because to them the lower interest rate is worth having a second well-qualified individual obligated on their loan. If the borrower experiences loss of income or another financial hardship and is unable to make their payments, the lender can turn to the cosigner, who is legally obligated to make the payments even though they did not receive any of the proceeds.
How to Obtain the Best Private Student Loans
At this point, you should have a general idea of what private student loans are and if you may be eligible or not. If you think you are ready to take on educational debt from a private lender, the next step is to apply to the best place for student loans for you!
Applying for the best private financing is quite simple, actually. Almost every lender allows its users to apply online through their website—either on a computer or a mobile device. Applications tend to take around 20 minutes and are relatively straightforward.
In order to make the process as manageable as possible, it is smart to have the necessary information and documents ready. This may include personal background information, information about the school you plan to attend, and financial documents like pay stubs or another proof of income.
Furthermore, if you have a cosigner, he or she will need the same information for the application. Typically, cosigners can fill out their part of the application after the student has completed his or hers.
Once you submit the application, the lender will perform a credit pull on you and your cosigner, if you have one. The application and credit check results will be sent to the underwriters who determine your eligibility and the terms of your loan.
Within a few days at most, you will be notified of the results of your application. At this point, you may be required to submit additional information to complete the approval process.
To accept the loan, you will have to sign the promissory note. This is the legally binding contract that requires you to repay your loan and any interest that accumulates. After you sign the promissory note, the funds from your loan will be sent to your school following the certification.
Paying Back Private Student Loans After Graduation
Though repayment varies with each private lender, there are typically four repayment options. The best places for student loans offer a variety of options that you can choose from depending on your situation.
Deferment – In this case, the borrower makes no payments towards their student loans until after graduation. In this case, usually interest still accumulates. Some lenders do not allow for this option.
Flat Payment – Borrowers who choose this option will make one flat payment each month while in school. These payments will go towards interest that accrues but will not cover all of it.
Interest-Only Payments – This option is smart for those who cannot afford to make full payments while in college. In this case, students make payments towards the interest that accrues while they are in school. This will keep the principal balance level. If the accrued interest is not paid, the principal will continue to grow and each subsequent interest charge will be higher.
Interest and Principal – In this case, payments are made towards both the interest that accumulates as well as the principal. For this option, the principal will continually decrease as payments are made, meaning less interest will also accumulate. Many students are not able to choose this option, as they are too busy with their studies to work a job.
No matter which plan you end up choosing, you will most likely still be paying off your educational debt after graduation. For those that chose the deferment option, there is usually a grace period after graduation in which the borrower doesn’t have to start making payments. Most lenders allow for a grace period of 6 months.
How to Choose the Best Private Student Loan
Beyond the Interest Rates
There are many factors to take into account when choosing a lender and a loan. The loan with the lowest interest rate is the first one to look at, but isn’t necessarily the best choice without considering the loan terms completely. One term to be watchful of is whether there is a prepayment penalty. A prepayment penalty is a fee the borrower has to pay the lender if they refinance the loan or pay it off ahead of schedule. The best places for student loans don't charge any prepayment fees.
Some borrowers who accept loans with variable interest rates with the expectation of refinancing and consolidating student loans once rates rise are shocked to learn that when they accepted the loan they agreed to a significant prepayment penalty. Because of the penalty, refinancing no longer makes good financial sense. Just because there is a prepayment penalty that does not mean the loan isn’t worth considering, though. It is just one of many factors to balance when comparison shopping.
Borrowers also need to consider whether the lender offers any flexibility with payments if the borrower returns to school in the future or experiences financial hardship that would make it difficult or impossible to make monthly payments. Does the lender offer deferment if the borrower re-enrolls in school for a graduate or second degree? What about postponement or lowering of payments if there is a sudden drop in income?
Read loan terms carefully, and also take the time to research the company online and read reviews by other borrowers. This is especially important if considering a loan from a smaller and lesser-known lender. A lender with a poor reputation for customer service or whose credibility is in question is one to be avoided, even if they purport to offer low rates.
How to Determine the Best Place for Your Student Loans
As mentioned, the interest rate is one of the most important factors to consider when trying to find the best place for student loans. Typically, the best private student loan for you is one with a very low interest rate. It’s important to read all the terms of a loan before accepting, including those unrelated to the rate, but with so many loans and lenders out there it would be extremely time-consuming to examine all the terms for all lenders. Borrowers need a strategy with which to approach shopping for a loan.
First, it is important to narrow down choices, and the interest rate is a good way to do that. Once a borrower has identified several lenders offering the same or similar rates, and eliminated from consideration those lenders offering the higher rates, it’s time to examine the other factors. These include fees, prepayment penalties, repayment options, and reputation of the lender. There is no mathematical formula here to determine what is the best private student loan for any one borrower.
However, most factors should be balanced against the interest rate, since the money saved by having a low rate adds up quickly. And two or more offers with the same rate should be carefully compared for hidden fees, such as the prepayment penalty and an origination fee. There are many websites that will allow borrowers to fill out one application to get multiple loan offers. These are great tools for comparison shopping, but if all the terms aren’t available then the borrower should not be hesitant to reach out to the lenders individually to get all of the details on what’s being offered.
What Private Student Loans Can Be Used For
So, although there is not likely to be anyone looking over the borrower’s shoulder to ensure that the money is spent in the way it was intended, some things clearly do not fall within the category of cost of attendance while others are merely questionable.
Cost of Attendance
The following items are unquestionably appropriate categories to spend private student loan proceeds on: tuition, room and board, books and supplies, transportation to and from school, a computer sufficient for schoolwork, and reasonable meals. In short, academic costs relating to enrollment, and related living expenses, are to be paid for out of the loan proceeds unless the loan agreement says differently. Some agreements may say little or nothing regarding a limitation on spending the loan proceeds, while others may list appropriate and inappropriate categories or even limit the money to tuition costs. Most will simply require the borrower to agree to spend the funds on education-related costs.
Clearly Inappropriate Uses for Student Loans
Plainly, some things students might be tempted to spend their loan money on would not only be an inappropriate use of funds, but will also leave them in a difficult situation later in the school year when those funds are no longer available for basic living expenses. Private student loans should never be used to finance vacations, purchase new vehicles, or plan a wedding, just for a few examples. Borrowers should also avoid the temptation of using proceeds to pay down credit cards or other debt. It may seem logical to use a lower-interest student loan to pay down a higher-interest credit card. But the reality is, once the credit card balance is available again, many if not most students will be sorely tempted to charge it up again for non-essentials. This leaves them worse off than before, with no loan money and also no available credit balance.
The Questionable Uses
It is easy to spot the really appropriate uses from the really inappropriate ones. It’s a bit trickier to make judgment calls on expenses that fall into a living expense category but are actually luxuries. Thirty dollar dinners out fall into this category, as does renting an apartment off-campus that isn’t shared with roommates or is above a reasonable price range. It is important to budget proceeds carefully so that they don’t run out before the academic year does.
Why You Should Pay Back Private Student Loans While Still In School
Student borrowers have a lot on their minds. It’s no wonder, then, that very few of them devote much thought to repayment of their student loans until after graduation. However, the time to plan repayment of student loans is long before then. Many borrowers whose repayment terms begin after graduation don’t understand that they can voluntarily contribute small payments toward their loans while still in school.
There are a variety of ways you can save money while making your repayment process go as smoothly as possible. It is first important to understand the ins and outs of your loans. This means you should know your monthly payment, interest rates and types, and your length of repayment. It is much harder to successfully repay your debts if you don’t know the basics about them.
Saving Money on Interest and Principal
The more that is paid today, the less there will be owed tomorrow. If a borrower can afford to do so, they should start repayment of their private student loans from the day they begin college. This doesn’t mean that they need to attempt to make full monthly payments; even small payments made monthly or semi-monthly will add up over time and result in less debt upon graduation. The faster the principal balance is reduced, the less interest will be able to accrue.
If you have more than one private student loan or both private and federal student loans, you can save money by paying off your highest interest loans first. Because these have higher interest rates, more money will accumulate each month. Pay each of you minimum payments and then take whatever money you have left over and put it towards your most expensive loans.
Another way to save money is to take advantage of interest rate reduction offers. The most common, that nearly every lender offers, is for enrolling in automatic payments. When you do this, not only are you given an interest discount (usually around 0.25%), you also don’t have to worry about making your payment each month. As long as the money is in the account, your servicer will automatically deduct your payment.
Saving Money on Compound Interest
Compound interest is actually double and triple interest. When a loan accrues interest throughout a particular period of time, such as a month or a year, the interest that goes unpaid is added (or “compounded”) to the original principal balance. During the next period, interest accrues all over again, but this time it accrues on the new principal balance, which includes the interest left unpaid from last time. By the time a loan is on the third such period of time, the interest is accruing on the original principal balance PLUS the previous two periods’ worth of interest. It’s easy to see why balances balloon when compound interest is involved.
Since almost all private loans will compound unpaid interest, it benefits borrowers to pay down the interest. Even if no money is available to put toward the principal balance, if a borrower can keep the interest paid off then they can save hundreds or even thousands of dollars by graduation, just by keeping compound interest at bay. Many private student loans compound interest daily, so borrowers might even consider making twice-monthly payments that cover the interest for each month. If a borrower wants to pay down their principal balance while still in school, they need to be aware that any payments made on their loan account will be applied first to accrued interest and then to the principal balance.
Pay more than the minimum amount required. When you do this, you will reduce the total balance of your loan. When you have a smaller balance, less interest is charged to you. If you come across extra money, consider putting it towards your debt, even if it is only a one-time thing.
Tracking the Loan Balance
Borrowers must stay organized in order to stay on top of their principal, accruing interest, and overall loan balance. Designating a drawer or an email folder to just loan statements is a good way to stay aware of the balance and avoid missing payments. Even if the payments are small and voluntary, each payment that staves off compound interest is eventually worth much more than what is paid, because it prevents a buildup of interest in the months and years ahead.
If you know your loans, you should come up with a plan on how to pay them back. Create a budget for yourself. This means you should first write down all of your sources of income. Following this, you should take out any absolutely necessary expenses. These may include rent or mortgage payments, utilities, and food. The next thing to budget for would be any debts you owe. Because these can hurt you financially if you ignore them, they should be prioritized above non-essential things like entertainment or alcohol.
Private Student Loan Refinancing
The last, but certainly not least, tip is to consider student loan refinancing. When you refinance your student loans, you trade into your old federal and/or private educational loans for a new one with different terms. Usually when refinancing, you are given a lower interest rate as compared to your previous loans.
Refinancing is done with a private lender who determines your eligibility based on your creditworthiness. Because many students obtain jobs after graduation and now have a steady stream of income, they are considered to be more trustworthy than they were when first applying. This is why lenders often are able to offer lower interest rates to applicants.
When the proceeds of a private educational loan are deposited into a borrower’s bank account for the first time, often that is more money than a student has ever had at their disposal before. It can be extremely tempting to spend it on luxuries such as wardrobe upgrades and frequent dining out. However, most loan agreements with private student lenders, as well as every student loan from the federal government, will state that the borrower agrees to use the proceeds of the loan toward the cost of attendance at an institution of higher education.
Citizens Bank offers options to students and directly to parents. For the loan to students, variable rates range from 2.76% to 9.51% and fixed rates range from 5.25% to 11.75%. Loans can range from $1,000 to $175,000. These low interest student loans are highly competitive.