Private student loan volume is growing much more rapidly than federal student loan volume (e.g., 25% per year versus 8% per year). If current trends continue, annual private education loan volume will surpass federal student loan volume by around 2025. Accordingly, it is important that students have tools they can use to compare different private student loans. (Private student loan volume dropped in half in 2008-09, according to the College Board's Trends in Student Aid 2009. The Ensuring Continued Access to Student Loans Act of 2008 increased annual and aggregate loan limits for the federal Stafford loan starting July 1, 2008. This was the first increase in the aggregate loan limits since 1992. The introduction of the Grad PLUS loan on July 1, 2006 and the increases in the annual but not aggregate limits had only a modest impact on the growth of private student loan volume. Whenever the federal government increases loan limits or expands the availability of federal student loans, it shifts borrowing from private loans to federal. The subprime mortgage credit crisis of 2007-2010 also limited lender access to the capital needed to make new loans, reining in growth of the private student loan marketplace. The proposed expansion of the Perkins Loan program from $1.5 billion a year to $6.0 billion a year would likely shift $4.5 billion in borrowing from private student loans to federal. But so long as federal loan limits do not increase every year, private student loan volume will continue to grow at double-digit rates.)

This page provides a basic comparison chart that highlights the key characteristics of the major private education loans. There is a separate list of private consolidation loans that can be used to consolidate private education loans.

For other sites that compare student loans, see FinAid's list of Student Loan Comparison Sites.

Best Private Student Loans

As a general rule, students should only consider obtaining a private education loan if they have maxed out the Federal Stafford Loan. They should also file the Free Application for Federal Student Aid (FAFSA), which may qualify them for grants, work-study and other forms of student aid. Undergraduate students should also compare costs with the Federal PLUS Loan, as the PLUS loan is usually much less expensive and has better repayment terms.

The fees charged by some lenders can significantly increase the cost of the loan. A loan with a relatively low interest rate but high fees can ultimately cost more than a loan with a somewhat higher interest rate and no fees. (The lenders that do not charge fees often roll the difference into the interest rate.) A good rule of thumb is that 3% to 4% in fees is about the same as a 1% higher interest rate.

Be wary of comparing loans with different repayment terms according to APR, as a longer loan term reduces the APR despite increasing the total amount of interest paid. FinAid's Loan Analyzer Calculator may be used to generate an apples-to-apples comparison of different loan programs.

The best private student loans will have interest rates of LIBOR + 2.0% or PRIME - 0.50% with no fees. Such loans will be competitive with the Federal PLUS Loan. Unfortunately, these rates often will be available only to borrowers with great credit who also have a creditworthy cosigner. It is unclear how many borrowers qualify for the best rates, although the top credit tier typically encompasses about 20% of borrowers.

Generally, borrowers should prefer loans that are pegged to the LIBOR index over loans that are pegged to the Prime Lending Rate, all else being equal, as the spread between the Prime Lending Rate and LIBOR has been increasing over time. Over the long term a loan with interest rates based on LIBOR will be less expensive than a loan based on the Prime Lending Rate. About half of lenders peg their private student loans to the LIBOR index and about 2/5 to the Prime lending rate.

Some lenders use the LIBOR rate because it reflects their cost of capital. Other lenders use the Prime Lending Rate because PRIME + 0.0% sounds better to consumers than LIBOR + 2.80% even when the rates are the same.

It is not uncommon for lenders to advertise a lower rate for the in-school and grace period, with a higher rate in effect when the loan enters repayment.

Federal student loans are not available for expenses incurred by law, medical and dental students after they graduate, such as expenses associated with study for the bar or finding a residency. There are two types of private student loans for these expenses:

• A Bar Study Loan helps finance bar exam costs such as bar review course fees, bar exam fees, as well as living expenses while you are studying for the bar.
• A Residency and Relocation Loan helps medical and dental students with the expenses associated with finding a residency, including interview travel expenses and relocation costs, as well as board exam expenses.

Private Student Loan Comparison Chart

The following table provides information about the annual and cumulative loan limits, interest rates, fees, and loan term for the most popular private student loan programs. Often the interest rates, fees and loan limits depend on the credit history of the borrower and co-signer, if any, and on loan options chosen by the borrower such as in-school deferment and repayment schedule. Loan term often depends on the total amount of debt.

Most lenders that require school certification (approval) will cap the annual loan amount at cost of education less aid received (COA-Aid). They may also have an annual dollar limit as well.

Lenders rarely give complete details of the terms of the private student loan until after the student submits an application, in part because this helps prevent comparisons based on cost. For example, many lenders will only advertise the lowest interest rate they charge (for good credit borrowers). Borrowers with bad credit can expect interest rates that are as much as 6% higher, loan fees that are as much as 9% higher, and loan limits that are two-thirds lower than the advertised figures.

The information presented in this table is based on lender literature and a survey of rates charged to actual students. Actual rates and fees may be higher. If only one rate is listed, it is the best rate offered by the lender, and actual rates for borrowers with inferior credit scores will be much higher. If only two rates are listed, they are the best and worst rates offered by the lender (min/max).

The lenders are listed in alphabetical order. No significance should be inferred from the order in which the lenders are listed.

Special Uses

Loans which can be used for purchase of a computer include:

• U.S. Bank No Fee Education Loan

Loans which can be used for study abroad include:

• U.S. Bank No Fee Education Loan

Loans which do not require school certification include:

• Chase Private Student Loans
• Wells Fargo Education Connection Loan

Loans which can be used for previous school charges include:

• Charter One TruFit Loan
• Citizens Bank TruFit Loan
• Chase Select Loans
• Discover Student Loans
• First Marblehead
• PNC Solution Loan
• Sallie Mae Smart Option Loans
• The Maine Loan and The Maine Medical Loan
• Think Financial
• U.S. Bank No Fee Education Loan
• Wells Fargo Education Connection Loan

Most are available for up to six months after the end of the semester. Some are available for 60 days and some for up to a year.

Loans which do not require the borrower to be enrolled in a degree-seeking program include:

• Sallie Mae Career Training Smart Option Student Loan
• U.S. Bank No Fee Education Loan

Loans which do not require the borrower to be enrolled at least half-time include:

• Chase Select Loans
• Sallie Mae Smart Option Student Loan
• U.S. Bank No Fee Education Loan
• Wells Fargo Education Connection Loan

Loans which are discharged upon the death or total and permanent disability of the primary borrower include:

• New York NYHELPs
• Sallie Mae Smart Option Loans

Definitions

• LIBOR is the 3-month average of the London Interbank Offered Rate. LIBOR is the average interest rate paid on deposits of US dollars in the London market.
• PRIME is the Prime Lending Rate as published in the Wall Street Journal. This is the rate banks charge their most creditworthy customers.
• COA-Aid is the Cost of Attendance minus all other student aid received.
• APR is the Annual Percentage Rate, a rate that factors in the interest rate, fees, and other terms.

Current LIBOR and Prime Lending rates can be found in the Federal Reserve's Statistical Release. The LIBOR rate appears in the London Eurodollar Deposits lines (1, 3 and 6 month figures) and the Prime Lending Rate appears in the Bank Prime Loan line.

The current (weekly) interest rates are:

• Prime Lending Rate: 3.25%
• LIBOR (1 month): 0.45%
• LIBOR (3 months): 0.60%
• 91-day T-Bill: 0.16%

The current spread between the Prime Lending Rate and the 3-month LIBOR is 2.65%. The current spread between the Prime Lending Rate and the 1-month LIBOR is 2.80%.