Private Student Loans: Reviews & Comparisons
Private student loans can be a good option for students who have already exhausted their federal loan options. However, rates and fees can vary significantly from one lender to another. So it pays to compare lenders before choosing a private student loan. This guide will teach you how to compare student loans so you can find the best deal possible.
What is a private student loan?Private student loans are student loans issued by private lenders (rather than the federal government). To qualify, you'll need to present a healthy credit score and steady income source -- or, failing that, a creditworthy co-signer. When you take out a private student loan, the interest rates and terms that you qualify for depend on your creditworthiness.
Why might you get a private student loan?
There are limits on how much you can borrow with federal student loans. If your tuition exceeds that limit, private student loans can make up the difference.
Also, federal student loans can be withdrawn if you fail to maintain a 2.0 cumulative GPA. Private student loans, on the other hand, are not reliant on academic success.
Alternatively, you might pursue a private student loan in order to consolidate several disparate pools of student debt. These "consolidation loans" can streamline a disorienting tangle of payments into a single easy monthly payment.
What should you consider when you compare private student loans?
There is an enormous online ecosystem of private student loan lenders, and as such, loan offers vary widely in their rates and terms. When you compare private student loans, consider the following factors:
What are the eligibility requirements for private student loans?
The requirements of private student lenders vary widely. You may need to be enrolled in an eligible school, or you may have to meet certain age, education, or citizenship requirements.
Also, unlike some federal loans, most private student loans require a credit check. Before you get excited about any one lender, make sure that your credit meets their standards (or that you have a qualifying cosigner).
How do you compare private student loans?Here is a list of the rates and terms you should consider when comparing student loans.
- Type of lender
- Interest rates
- Origination fees and other additional expenses
- Borrower protections
- Eligibility requirements
- Consumer reviews
What are the rates for private student loans?
There are two types of private student loans: fixed rate loans and variable rate loans. Some lenders offer both types, while others stick to just one.
With a fixed rate loan, interest rates remain constant for the life of the loan. As such, they offer stability and are advantageous when market rates are low.
Variable rate loans often feature very low introductory interest rates, but those rates fluctuate based on market conditions and other factors. These loans could potentially save you more money, but they come with risk. You should only take one if your savings could support a spike in interest further down the line.
When you compare private student loans, keep an eye on the type of interest they offer, as well as the specific interest rate. After all, your interest rate is the percentage of the total loan that you'll have to pay to your lender. In other words, it determines the cost of your loan.
What are the fees?
Every loan comes with fees, often hidden in the fine print. And fees can seriously contribute to the total cost of a loan. When you compare private student loan offers, make sure to read every detail to find out which fees a lender charges. Plus, keep an eye on how high those fees are.
What are origination fees?
Most lenders charge an origination fee when they send you your money. Origination fees reduce the amount of money that you receive, but not the amount that you must repay. As such, if you want to save money, you should seek out a lender with low or no origination fees.
Do they charge application fees
Application fees must be paid at the time the loan application is submitted. These fees are often nonrefundable, even if your application is denied.
Not all lenders charge application fees, but many do. Be careful not to waste too much money paying for expensive application fees for loans that you likely won't qualify for. Do your research and apply to lenders who accept applicants in your circumstances.
Do they charge early termination fees?
You might think that paying off your student loans early would be a good thing. In part, you're right: it's great to get out of debt, and shortening your loan term can also shorten the loan's overall costs. However, when borrowers pay off their loans early, lenders lose money. As such, many charge early termination fees as a penalty to borrowers who shorten their own loan terms.
If you think there's a chance you'll be able to pay off your loan early, seek out a lender with low or no early termination penalties.
What are the repayment term?
The length of your repayment term affects both the cost of your monthly payments and the overall cost of the loan.
A longer loan term means lower monthly payments, but it also means a higher cost overall. Accordingly, a shorter loan term means you'll save more money overall, but your monthly payments will be higher. You should shoot for the shortest term wherein you can still comfortably afford your monthly payments.
A student loan can follow you for years -- sometimes decades -- after the day you originated the loan. And your circumstances can change a lot during that time. You could end up unemployed for longer than anticipated, or could take a salary cut in an unexpected career change. That's why it's imperative that you find a lender who is willing to work with you through the unexpected.
Do they offer loan deferment?
Does your lender allow in-school deferment (wherein you can skip payments on your loan as long as you're enrolled in a qualified undergrad, graduate, or co-op program)? Do they offer a grace period (usually six to nine months) after graduation before your first payment is due?
Do they offer loan forbearance?
"Forbearance" is the ability to skip monthly payments without threat of going into default. Keep in mind that generally speaking, even if your lender does allow forbearance, interest will continue to accrue during the forbearance period.
If you undergo a hardship, will your lender allow you to file for hardship forbearance? Or do they offer volunteer or work-related deferment, wherein you can skip loan payments by taking certain eligible jobs or volunteering for eligible organizations?
And if your lender does allow for forbearance, will you have to pay the interest that you accrued on your next monthly payment? Or will they merely append it to your outstanding balance?
What are their loan cancellation terms?
Some lenders will even cancel some or all of your loan if you take a certain job. For example, teaching in certain areas, or taking a particular assignment as a nurse, may entitle you to loan cancellation.
If you're worried about finances in your future, you can seek out a loan that advertises loan cancellation. Then, when you've graduated from your program, simply take the job which entitles you to loan cancellation. If a lender offers this, it can be hugely advantageous to the borrower.
In general, when you compare lenders, seek out a loan offer that reflects your intended post-graduation trajectory. And make sure that they are willing to cooperate with you in the case of a crisis. To confirm that they're as flexible as they say, read unbiased reviews from past or current borrowers. These will give you a more honest look at what to expect from your lender.
Consumer reviews - What is their customer service like?
Since you'll be paying back your student loans for a long time, you want to know that your lender is open and honest. Look for a lender that will work with you in moments of crisis, and that will be accessible and communicative when you need to report a problem. In this day and age, online portals and autopay systems are also great assets for managing your payments.
The best way to confirm that a lender offers good customer service is to read honest reviews from past customers. Learn about others' experiences to find out what to expect from a given lender. If many past (or present) customers report the same issue with a given lender, odds are good that you'll encounter the same problem.
Putting it all together
When you compare private student loans, you'll need to consider all of the above to find the perfect loan. The right choice for you depends on your circumstances. Do you want to prioritize lower monthly payments, or more savings overall? Might you pay off your loan early, or do early termination fees not matter to you? Do you have good credit, or access to a creditworthy cosigner? Are you worried that you might have to defer your loan while you hunt for work?
To find a lender who offers the features that you need, you'll have to do your research. But don't worry: SuperMoney makes it easy. Check out our private student loan reviews page to compare interest rates, loan terms, and fees side-by-side from a ton of top lenders.
Or if you're looking for a consolidation loan, check out these student loan refinancing lenders. You can even use our student loan refinancing engine to pre-qualify for a ton of different offers. It only takes a few minutes, and it won't hurt your credit score!