What is a Private Student Loan?

A private student loan is simply a student loan offered by a private lender. Private student loans can be a great option for students wanting to take advantage of a good credit score, or who are otherwise unable to acquire student loan funding from the federal government. Private student loans are more closely related to traditional personal loans than other student loans, requiring a credit check and offering interest rates based that vary depending on the borrower and the loan.

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How Do They Work?

With private student loans, you borrow money from a lender rather than the government. Unlike federal student loans, private student loans typically have a minimum credit requirement which is usually a score in the mid600s. Once you have been approved for a private student loan, repayment functions much the same as a federal student loan. Usually, repayment is delayed while you are still in school, meaning you don’t have to make payments until after you have completed your degree or have decided to leave university. Once you leave school, you will be required to make monthly payments on the principal plus interest for the duration of your loan term.

Rates (%)

Unlike federal student loans, which tend to have similar rates for all students, interest rates on private student loans are determined by your degree, your credit score and the term length of the loan (you may want to see our credit rebuilding guide). Rates also tend to vary from lender to lender, so it’s worth shopping around. That said, the private student loan average rate tends to sit between 4% and 12%, depending on your credit score.

Credit Requirements

While federal loans have no minimum credit score, private loans tend to require a credit score of at least 640 in order for your application to be considered. This is understandably difficult for many young people to achieve, as most have a very little history of borrowing. For this reason, most private lenders allow for co-signing on student loans. This allows a young borrower to use a co-signer, typically a family member or trusted friend with a good credit score to sign on the loan as well. This guarantees the lender that somebody with an adequate credit score is ensuring the repayment of the loan.

Advantages and Disadvantages

Private student loans have a number of advantages. If you are ineligible for federal student funding, private student loans can be a great way to secure the money you need for school without having to pay tuition upfront. Furthermore, if you already have a decent credit history, you may find that private student loans actually offer you better interest rates than federal loans, saving you money over time.

The disadvantages of private student loans are mostly due to their credit requirements and their interest rates. It can be difficult or even impossible to secure a private loan if you or someone you trust doesn’t have a strong credit score, making private loans a less ideal option for a sizeable amount of the population. On top of that, while private student loans can at times have more beneficial interest rates than federal loans, if you are applying for a private loan with the minimum required credit score you may find yourself paying higher interest rates than you would with federal loans.

Great Lakes Student Loans

Great Lakes Student Loans is one of the larger private student loan servicers. Loan servicers don’t actually offer up the money for a loan, instead, they manage the day to day repayments of a loan on behalf of a lender. Great Lakes has serviced over $200 billion in student loans and offer a myriad of repayment options, including plans for those who enter the military, as well as income-based repayment plans.

Discover Student Loans

Discover is one of the top private student loan lenders in America, and they didn’t get there for anything. Not only do they offer competitive interest rates to those with bad credit, but they also offer incentives like a reward for good grades, which pays you 1% of the loan amount in cash for every semester in which you maintain a 3.0 GPA or higher. Discover student loans also allow you to make in-school payments on your loan, and their application process can take as little as 15minutes.

Navient Student Loans

Much like Great Lakes Student Loans, Navient is a loan servicing organization responsible for overseeing the day to day repayment of millions of student loans across the country. Navient offers multiple repayment plans including income-based repayment and plans accounting for military service. Depending on your loan, Navient may allow you to defer payments if you are in a tough place financially.

Nelnet Student Loans

Nelnet has a few perks of its own when it comes to loan servicing, one of the most notable being their auto-debiting feature which lowers your interest rate by .25% if you opt to have your loan repayments automatically withdrawn from your bank account every month. Nelnet also offers multiple repayment options and loan consolidation.


Unlike federal student loans, the factors that go into qualifying for private student loan forgiveness can vary quite dramatically. You may be eligible for forgiveness based on your profession, the institution of your education or even the company who serviced your loan. While forgiveness for federal student loans is managed via studentloans.gov, it can be a challenge to find out who you have to speak to in order to apply for private student loan forgiveness. Your best bet is always going to be your initial loan lender, however, there are instances where the federal government carries out private loan forgiveness, so it is worth keeping tabs on agencies such as Department of Education and theConsumer FinancialProtection Bureau.

There are a number of reasons why a private student loan may be the best option for you. It could be that you’re taking advantage of a strong credit score, or you just might not be eligible for federal funding. Regardless of the reason, it is important to keep track of the money you are lending, especially when you aren’t required to pay it back while in school. It’s easy to forget just how significant your debt is when you aren’t required to repay it right away, so be sensible with your purchases and try your hardest to set yourself up for financial stability once your loan repayments do kick in.

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