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The cost of college continues to rise. The average full cost of attending college in 2025-26 was $30,990 for in-state students attending a public institution, $50,920 for out-of-state students at a public institution, and $65,470 at private colleges, according to the College Board While grants and scholarships can significantly reduce your out-of-pocket expenses, they typically don’t cover the full cost of your college education.
Student loans can help bridge that funding gap. Federal student loans are generally the best place to start because they offer fixed interest rates, flexible repayment options, and borrower protections that private loans typically don’t provide. However, federal loans also come with borrowing limits. If you still need additional funding after exhausting your federal aid options, private student loans may help cover the remaining costs.
This guide explains how private student loans work, their advantages and disadvantages, and what to consider before applying.
Key Points
• A private student loan is an educational loan issued by a private lender, such as a bank, credit union, or online lender, rather than the federal government.
• Private student loans may help cover remaining college costs if federal aid options and savings have been exhausted.
• Borrowers typically must pass a credit check to qualify; many students need a creditworthy cosigner to secure competitive rates and terms.
• Unlike federal student loans, private loans lack access to federal benefits like income-driven repayment and potential forgiveness programs.
• If you decide to borrow from a private lender, it is wise to compare multiple lenders and borrow only what you need.
What Is a Private Student Loan?
A private student loan is an educational loan issued by a private lender, such as a bank, credit union, or online lender, rather than the federal government. Students often use private student loans when financial aid, savings, and federal student loans aren’t enough to cover the total cost of attendance.
Funds from a private school loan can typically be used for tuition, fees, housing, meal plans, transportation, books, and other education-related costs. Interest rates may be variable or fixed and are determined by the lender.
Borrowers typically must pass a credit check to qualify for private student loans. Since many students have limited credit histories, applying with a creditworthy cosigner is often necessary to qualify for competitive rates and terms.
How Do Private Student Loans Work?
Loan amounts, interest rates, repayment terms, and eligibility requirements vary by lender. If you’re considering a private student loan, it’s important to compare your multiple lenders to find the best fit for your financial situation.
To get a private student loan, you’ll submit an application directly with your chosen lender. The lender will review your credit profile, income, and other financial information to determine whether you qualify and what rates and terms you’ll receive.
LIke federal unsubsidized loans, private student loans generally begin accruing interest as soon as funds are disbursed. If you don’t make interest payments while you’re in school, the unpaid interest may capitalize, meaning it gets added to your principal balance. Future interest is then calculated on the higher balance.
Interest Rates: Fixed vs Variable
Many private student loan lenders offer both fixed-rate and variable-rate options:
• Fixed rate loans maintain the same interest rate throughout the life of the loan, resulting in predictable monthly payments. This can make budgeting easier and protects borrowers from future rate increases.
• Variable rates have interest rates that can change over time based on market conditions. While variable rates may start lower than fixed rates, they may increase or decrease during repayment, causing monthly payments to fluctuate.
Federal student loans, by comparison, only offer fixed interest rates.
Repayment Terms and Disbursement
If you’re approved for a private student loan, the lender typically sends the funds directly to your school. The school applies the money toward tuition, fees, room and board, and other charges. Any remaining funds are refunded to you for additional education-related costs, such as textbooks, transportation, or supplies. Repayment terms vary by lender and commonly range from five to 20 years. Many lenders also allow borrowers to choose among several repayment options while enrolled in school:
• Interest-only repayment: You make payments toward accrued interest while in school. This can reduce the total amount repaid over the life of the loan.
• Immediate repayment: You begin making full principal-and-interest payments right away. This option generally results in the lowest overall borrowing cost.
• Deferred repayment: You postpone payments until after graduation, leaving school, or dropping below half-time enrollment. Because interest continues to accrue during the deferment period, this option usually results in the highest total borrowing cost.
The Pros and Cons of Private Student Loans
If federal financial aid isn’t enough to cover your educational expenses, private student loans can help fill the gap. However, it’s important to understand both the benefits and drawbacks before borrowing.
| Pros of Private Student Loans | Cons of Private Student Loans |
|---|---|
| Apply any time of the year | May have higher interest rates |
| Higher borrowing limits | No access to federal forgiveness programs |
| Potentially lower rates for highly qualified borrowers | No federal interest subsidies |
| Fast application process | Risk of overborrowing |
| Options for international students | May require a cosigner |
Benefits of Private Student Loans
Here’s a look at some of the advantages that come with private student loans.
Apply Any Time of the Year
Unlike federal student loans, which require students to submit the Free Application for Federal Student Aid (FAFSA®) annually, private student loans can be applied for throughout the year. This flexibility can be helpful if you experience an unexpected funding gap or your educational expenses increase after the academic year begins.
Higher Loan Amounts
Federal student loans have annual and lifetime borrowing limits. For example, a first-year, dependent undergraduate can borrow up to $5,500 for that year. The aggregate max a dependent student can borrow for their undergraduate education is $31,000. Private student loan limits vary with each lender, but you can typically borrow up to the full cost of attendance each year, minus any financial aid received.
May Offer Lower Rates for Highly Qualified Borrowers
Federal student loans offer fixed rates set by Congress, currently ranging from 6.39% to 8.94% depending on your degree level and type of loan. Private student loan rates vary based on creditworthiness, with some starting just under 3.00% for exceptional credit. Federal student loans also charge an upfront fee (called an origination fee), while many private lenders do not. Keep in mind, however, that APRs on private loans vary widely and can reach 18% (or more) for borrowers with limited credit history.
Faster Application and Approval Process
Unlike federal student loans, private student loans don’t require completion of the FAFSA. Many lenders allow borrowers to apply online in just a few minutes.
Some lenders provide preliminary lending decisions within just a few minutes, though final approval and school certification may take several days. This can make private student loans a useful option when unexpected educational expenses arise.
Options for International Students
International students generally don’t qualify for federal student aid. Some private lenders offer student loans to eligible non-U.S. citizens who meet specific criteria, such as attending an approved school and applying with a qualified U.S.-based cosigner.
When we say no fees required we mean it.
No late fees
when you take out a student loan with SoFi.
Disadvantages of Private Student Loans
Private student loans also have some downsides. Here are some to keep in mind.
Potentially Higher Interest Rates
Private lenders base interest rates on creditworthiness. Students with limited credit history may receive rates that are significantly higher than federal student loan rates. Federal loans provide the same interest rate to all eligible borrowers regardless of credit score.
Not Eligible for Federal Protections
Federal loans offer benefits such as income-driven repayment, loan forgiveness programs, and certain hardship protections. Private lenders generally do not provide the same level of borrower assistance.
No Federal Subsidy
Federal Direct Subsidized Loans, which are awarded to undergraduate students who demonstrate financial need, cover your interest while you are in school and for six months after you graduate. Private loans are unsubsidized, meaning that interest starts accruing immediately, which can significantly increase costs.
Risk of Overborrowing
Private lenders may allow students to borrow up to their full cost of attendance, minus financial aid. While this can be helpful, borrowing more than necessary increases both the total interest paid and the size of future monthly payments.
May Require a Cosigner
Because many students have limited income and credit history, a cosigner is often needed to qualify for a private student loan. A cosigner shares legal responsibility for repayment and may be affected if payments are missed.
Some lenders offer cosigner release programs that allow borrowers to remove the cosigner after meeting certain repayment requirements.
Recommended: Getting a Student Loan Without a Cosigner
Federal vs Private Student Loans
Here’s a closer look at some of the major differences between federal vs. private student loans.
Application Process
Federal student loans require students to complete the FAFSA each year. Eligibility is generally not based on credit history.
Private student loans require borrowers to apply directly through a lender. Typically, lenders perform a credit check and evaluate factors such as income and creditworthiness.
Recommended: Refinancing Student Loans With a Cosigner
Interest Rates
Federal student loan rates are fixed and set annually by federal law.
Private lenders establish their own rates, which may be fixed or variable. Rates depend on factors such as credit score income, loan amount, repayment term, and whether a cosigner (such as a parent) is included.
Repayment Plans
Borrowers who take out federal student loans on or after July 1, 2026 will have access to two repayment plans:
• The Repayment Assistance Plan (RAP): This is an income-driven plan charging 1% to 10% of your adjusted gross income (AGI), spanning 30 years before forgiveness.
• Tiered Standard Plan: This is a fixed-rate plan with terms spanning 10 to 25 years, determined by how much you borrowed.
Repayment plans for private loans are set by the individual lender. They can span from five to 20 years and typically don’t include an income-based option.
Deferment or Forbearance
Federal borrowers may qualify for forbearance during periods of financial hardship. Some private lenders also offer temporary hardship assistance, including deferment, forbearance, or reduced-payment programs. Availability varies by lender.
Loan Forgiveness
Borrowers with federal student loans may qualify for forgiveness programs such as Public Student Loan Forgiveness (PSLF), Teacher Loan Forgiveness, or after paying down their balances on an income-driven plan for a certain period of time.
Private student loans generally are not eligible for federal forgiveness programs. While some lenders may offer hardship assistance, permanent loan forgiveness is uncommon.
Should You Consider Private Student Loans?
Private student loans can be a useful tool when scholarships, grants, savings, and federal student aid aren’t enough to cover the cost of college. They may also be a practical option for international students.
However, students will generally want to consider federal student loans first because they offer valuable benefits, including income-driven repayment and potential forgiveness opportunities.
If you decide to borrow from a private lender, it’s wise to compare multiple lenders, review rates and repayment options carefully, and borrow only what you need to help ensure you can comfortably manage repayment.
You might also consider refinancing student loans in the future if doing so lowers your interest rate. Refinancing also allows you to combine federal and private student loans into a single loan with one monthly payment. Just keep in mind that refinancing federal loans with a private lender means giving up federal protections and benefits.
How to Get a Private Student Loan
Here’s a look at the steps involved in getting a private student loan.
1. Shop around. Compare multiple lenders and evaluate factors such as interest rates, loan limits, repayment terms, fees, borrower protections, and hardship assistance tools.
2. Check for prequalification. Some lenders allow borrowers to prequalify with a soft credit inquiry that won’t affect their credit score. This can provide an estimate of the rates and terms you may qualify for and let you know if you need to ask someone to cosign your loan.
3. Gather required documents. You’ll typically need personal identification, proof of income, school enrollment details, and potentially financial information from a cosigner.
4. Submit your application. Once your application is submitted, the lender reviews your information and verifies enrollment with your school. If approved, the lender coordinates disbursement with the institution.
Does Everyone Get Approved for Private Student Loans?
No. Approval depends on factors such as:
• Credit history
• Credit score
• Income and employment status
• Debt-to-income ratio
• Cosigner qualifications
• Enrollment at an eligible institution
If you don’t meet a lender’s requirements on your own, applying with a qualified cosigner may improve your chances of approval.
The Takeaway
Private student loans can help bridge funding gaps when scholarships, grants, savings, and federal student aid aren’t enough to cover the cost of college. While they often offer higher borrowing limits and may provide competitive rates for borrowers with strong credit, they lack many of the protections available through federal student loans.
Often the best approach is to exhaust grants, scholarships, and federal student loan options before considering private student loans. If a private loan is necessary, compare lenders carefully and borrow only what you need to keep future repayment manageable.
If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.
FAQ
Why would someone get a private student loan?
Private student loans are commonly used when federal financial aid, scholarships, grants, and personal savings don’t fully cover educational expenses. They can also help students who need funding beyond federal borrowing limits or who don’t qualify for federal aid.
Will private student loans be forgiven?
Private student loans aren’t funded by the government, so they don’t offer the same forgiveness programs. In fact, private student loan forgiveness is rare.
If you experience financial hardship, however, many lenders will work with you to stay out of default. They may agree to temporarily lower your payments, waive a payment, or switch to interest-only payments. Or, you might qualify for deferment or forbearance, which temporarily postpones your payments (though interest typically continues to accrue).
Are private student loans paid to you or the school?
Private student loans are typically disbursed directly to the school. After tuition, fees, and other charges are paid, any remaining funds are then refunded to the student for qualified educational expenses.
What credit score do you need for a private student loan?
Private student loan qualification requirements vary widely, but many lenders require a minimum FICO® score of 640 for approval. Because private loans are credit-based, a higher credit score typically yields a significantly lower interest rate. If you have poor credit or a thin credit history, you will likely need a creditworthy cosigner.
What is the difference between a private student loan and a federal student loan?
Federal student loans are funded directly by the government, while private student loans are issued by banks, credit unions, or online lenders. Federal options provide benefits like subsidies, income-driven repayment, and forgiveness programs that private lenders rarely match. However, federal loans have strict annual borrowing limits, while private loans often allow you to borrow up to your school’s total cost of attendance.
Experts generally recommend using private student loans only after all financial aid, including federal student loans, has been exhausted.
SoFi Private Student Loans
Terms and conditions apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. SoFi Private Student loans are subject to program terms and restrictions, such as completion of a loan application and self-certification form, verification of application information, the student's at least half-time enrollment in a degree program at a SoFi-participating school, and, if applicable, a co-signer. In addition, borrowers must be U.S. citizens or other eligible status, be residing in the U.S., Puerto Rico, U.S. Virgin Islands, or American Samoa, and must meet SoFi’s underwriting requirements, including verification of sufficient income to support your ability to repay. Minimum loan amount is $1,000. See SoFi.com/eligibility for more information. Lowest rates reserved for the most creditworthy borrowers. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change. This information is current as of 4/22/2025 and is subject to change. SoFi Private Student loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).
SoFi Bank, N.A. and its lending products are not endorsed by or directly affiliated with any college or university unless otherwise disclosed.
Please borrow responsibly. SoFi Private Student loans are not a substitute for federal loans, grants, and work-study programs. We encourage you to evaluate all your federal student aid options before you consider any private loans, including ours. Read our FAQs.
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SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
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