Private Student Loans | FinAid

Private Student Loans

Private student loan volume grows when federal student loan limits remain stagnant.

Private student loan volume grew much more rapidly than federal student loan volume through mid-2008, in part because aggregate loan limits on the Stafford loan remained unchanged from 1992 to 2008. (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. The subprime mortgage credit crisis of 2007-2010, however, limited lender access to the capital needed to make new loans, reining in growth of the private student loan marketplace.) The annual increase in private student loan volume was about 25% to 35% per year, compared with 8% per year for federal loan volume.

Student Loan Comparison Sites

This page provides a basic comparison chart that highlights the key characteristics of the major private education loans. FinAid also provides a separate list of private consolidation loans that can be used to consolidate private education loans.
In addition to these lists of private student loan programs, there are several web sites that provide tools for comparing private student loans. These tools can help you identify the loans that match your criteria. These student loan comparison sites include Credible and other student loan comparison sites.

Then the Ensuring Continued Access to Student Loans Act of 2008 increased the annual and aggregate loan limits on the federal Stafford loan starting July 1, 2008. This shifted significant loan volume from private student loan programs to federal. Private student loan volume dropped in half in 2008-09, according to the College Board's Trends in Student Aid 2009.

Private student loan volume is expected to return to the 25% annual growth rate unless there is another increase in federal loan limits or an expansion of the availability of federal student loans. For example, the proposal for expanding Perkins loan funding from $1 billion a year to $8.5 billion a year will cause a significant decline in private student loan volume. But so long as federal loan limits do not increase every year, private student loan volume will continue to grow at double-digit rates.

If current trends continue, annual private education loan volume will surpass federal student loan volume by around 2030. Accordingly, it is important that students have tools they can use to compare different private student loans.

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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.

Comparing Private Student Loans

Key information to understand student loans includes being aware of 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 APRs for variable rate loans, if listed, are only the current APRs and are likely to change over the term of the loan. Borrowers should be careful about comparing loans based on the APR, as the APR may be calculated under different assumptions, such as a different number of years in repayment. All else being equal, a longer repayment term will have a lower APR even though the borrower will pay more in interest.

The information presented below is based on lender provided information. Actual rates and fees may differ.

Name	Loan	Limits	Rates (Min/Avg/Max)	Fees	Term
Featured Credible Credible offers borrowers a "kayak-style" experience while shopping for student loans. Similar to the "Common App," users (and co-signers) complete a single, brief form and receive personalized offers from multiple lenders. The process is free and does not impact a user's credit score to compare offers. Credible's marketplace includes Citizens Bank Cognition Financial CollegeAve Connext Discover Student Loans iHelp RISLA Sallie Mae	Choose between fixed and variable rate loans, as well as deferred and interest-only repayment options for your school loans.	COA-Aid (annual limit) Borrow up to $170,000 through Credible's marketplace	Fixed rates as low as 3.99% APR and variable rates as low as 2.20% APR with auto pay. Access special discounts from some lenders.	No fees	5, 8, 10, 12, 15 and 20 year terms available
Citizens Bank Citizens Bank offers loan options for undergrad, grad students and parents with competitive rates, flexible terms and interest rate discounts. As the only lender to offer multi-year approval on the Citizens Bank Student Loan,® qualified borrowers can secure funding for multiple years in school, without completing a full application each year and impacting their credit score.	Choose between our student or parent loan options with competitive interest rates and flexible payment terms.	Loans from $1,000 to $225,000 depending on education level	Variable rates as low as 3.12% APR⁶ and fixed rates as low as 5.25% APR⁶ including all available discounts	No application fees	5, 10, or 15 year options available Rate and Repayment Examples
Citizens One Citizens One offers loan options for undergrad, grad students and parents with competitive rates, flexible terms and interest rate discounts. As the only lender to offer multi-year approval on the Citizens Bank Student Loan,® qualified borrowers can secure funding for multiple years in school, without completing a full application each year and impacting their credit score.	Choose between our student or parent loan options with competitive interest rates and flexible payment terms.	Loans from $1,000 to $225,000 depending on education level	Variable rates as low as 3.12% APR⁶ and fixed rates as low as 5.25% APR⁶ including all available discounts	No application fees	5, 10, or 15 year options available Rate and Repayment Examples
College Ave Student Loans College Ave Student Loans offers loan options for undergrads, grad students and parents. Our loans are designed to give you great rates plus the most repayment options so you can create a loan that fits your monthly budget while paying as little interest as possible. Our simple application process takes just 3 minutes to complete and get an instant credit decision. Not sure which repayment plan is right for you? Our student loan calculator and free credit pre-qualification tool can help. College Ave Student Loan products are made available through either Firstrust Bank, Member FDIC or The Middlefield Banking company, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply. For footnotes, please refer to the links for product specifics (undergraduate, graduate or parent).	Undergraduate Student Loan Help cover tuition and other education costs for students in associates and bachelors degree programs. You decide whether to make loan payments during school: Full Principal and interest payments Interest only payments $25 payments each month during school³ Defer payments while in school	COA-Aid ($2,000 minimum)²	Variable Rates: 2.93%-10.10% APR (with auto-pay discount)¹ Fixed Rates: 5.46%-12.52% APR (with auto-pay discount)¹	No application or origination fees and no penalties for paying early.	Choose between 8, 10, 12 or 15 year options.³
	Graduate Student Loan Cover the costs of school for students pursuing a masters, doctoral or professional degree Choose to repay the way that works for you: Full Principal and interest payments Interest only payments $25 payments each month during school³ Defer payments while in school	COA-Aid ($2,000 minimum)²	Variable Rates: 2.93%-9.25% APR (with auto-pay discount)¹ Fixed Rates: 5.46%-11.58% APR (with auto-pay discount)¹	No application or origination fees and no penalties for paying early.	Choose between 8, 10, 12 or 15 year options.³
	Parent Loan Help pay for your child's education with a customized loan. Choose how quickly to pay back the loan: Full Principal and interest payments Interest plus payment Interest only payments	COA-AID ($2,000 minimum)	Variable Rates: 4.07%-9.05% APR (with auto-pay discount)⁴ Fixed Rates: 6.62%-11.58% APR (with auto-pay discount)⁴	No application or origination fees and no penalties for paying early.	Choose to pay back the loan in as little as 5 years or take up to 12 years (or pick something in between).⁶
Commerce Bank Commerce Bank has provided guidance and solutions when seeking financial aid for over 50 years to students and their families. The lender has loan options for undergrads, grads, and parents with flexible features such as multiple repayment options and competitive fixed and variable interest rates the borrower may choose. Borrowers can borrower up to 100% of their school-certified cost of attendance. There are no origination or prepayment fees.	Your Future Education Loan For Undergraduate and Graduate & Professional School Students (includes MBA, Medical & Dental, and Health Professions) attending a degree-granting institution in the United States. Students who are enrolled full time, half time, and less than half time are eligible. Interest rate reduction available for auto debit payments. Their Future Education Loan Available to parents, grandparents, and other creditworthy individuals to cover up to 100% of the school-certified cost of attendance at a degree-granting institution in the United States. Student can be an undergrad/grad and be enrolled full time, half time, or less than half time.	Minimum of $1,000 up to the school-certified Cost of Attendance at the degree-granting institution	Undergraduate: Variable Rates: 3.12% APR to 10.12 APR Fixed Rates: 5.74% APR to 11.85% APR Graduate: Lower rates available to graduate students Variable Rates: 3.12% APR to 8.09% APR Fixed Rates: 5.74% APR to 8.56% APR Parent Loan Variable Rates: 4.62% APR to 11.00% APR Fixed Rates: 5.74% APR to 12.87% APR	No application, origination or prepayment fees	5-15 Years (Your Future Education Loan) 10 years (Their Future Education Loan)
Sallie Mae Funded by Sallie Mae Bank. Lender ID 900905. Special Features/Benefits: Auto Debit Savings — 0.25 percentage point interest rate reduction for automatic debit enrollment. Free financial literacy tools and resources, including access to quarterly FICO® Credit Scores for both borrowers and cosigners. Graduated Repayment Period— Budget flexibility for graduating students. Death and disability loan forgiveness. Loan Limit - Borrow up to 100% of the school-certified cost of attendance (minimum $1,000). Cosigner Requirement - Applying with a creditworthy cosigner may help you qualify. You may apply to release your cosigner from the loan after you graduate, make 12 on-time principal and interest payments and meet certain credit requirements. Releasing the cosigner will not adversely impact the rate on your loan. Eligibility - Available to students enrolled full time, half time, and less than half time. Application Process - Student or cosigner can initiate the application process at SallieMae.com. It only takes about 15 minutes to apply online and get a credit result. Sallie Mae reserves the right to modify or discontinue products, services, and benefits at any time without notice. Terms, conditions, and limitations apply. Visit SallieMae.com to get more information on all loan options. Terms, conditions, and limitations apply.	Smart Option Student Loan® For Undergraduate Students attending degree-granting institutions only. (School Certified) Pay now or later – choose an in-school repayment option that fits your needs or defer your payments until after school. Make interest payments each month Pay $25 per month Defer payments Introducing Study Starter, a free loan benefit with live 24/7 online tutoring that can help students make the grade. Learn More.	COA-Aid ($1,000 minimum)	Variable Rates: 1-month LIBOR + 2.00% (3.25% APR) to 1-month LIBOR + 9.88% (10.22% APR) Fixed Rates: 5.75% (5.74% APR) to 12.88% (11.85% APR)	No origination fee and no prepayment penalty.	5-15 years based on loan balance and year in school.
	Smart Option Student Loan For Graduate and Professional School Students attending degree-granting institutions only. (School Certified). Graduate loans available for various graduate programs including MBA, Medical & Dental, and Health Professions. Pay now or later – choose an in-school repayment option that fits your needs or defer your payments until after school. Make interest payments each month Pay $25 per month Defer payments	COA-Aid ($1,000 minimum)	Variable Rates: 1-month LIBOR + 2.0% (3.25% APR) to 1-month LIBOR + 7.25% (8.21% APR) Fixed Rates: 5.75% (5.74% APR) to 8.88% (8.56% APR)	No origination fee and no prepayment penalty.	5-15 years based on loan balance and year in school.
	Sallie Mae Parent Loan Any creditworthy individual can take out a Sallie Mae Parent Loan, including grandparents, aunts, uncles, spouses, and guardians. The Loan, which is available to pay for education expenses of both undergraduate and graduate students. Choose a repayment option that fits your needs: Interest Repayment: Borrowers make monthly interest payments while the student is enrolled in school for up to 48 months, followed by principal and interest payments Principal and Interest Repayment: Borrowers make monthly principal and interest payments while the student is enrolled in school and through the life of the loan	COA-AID ($1,000 minimum)	Variable Rates: 1-month LIBOR + 3.50% (4.75% APR) to 1-month LIBOR + 9.88% (11.12%% APR) Fixed Rates: 5.75% (5.74% APR) to 12.88% (12.87 APR)	No origination fee and no prepayment penalty.	10 years of principal and interest payments

Additional Lenders listed below. Please visit lender website for updated information.

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.