Who funds them

Private student loans are provided through private lenders, such as an online lender, bank or credit union. A number of state student loan authorities also offer student loans and student loan refinancing with similar terms to private loans.

How you can use the funds

You can use private student loans to pay for education-related costs and living expenses, which may not be covered by your federal student loans. These include college tuition and fees, and food and rent. Interest rates and terms on private student loans can vary, depending on your needs, financial situation and credit history. In many cases, private student lenders will require a co-signer.

Fixed rates for life

Federal student loans are provided directly by the U.S. Department of Education, which does not evaluate your ability to repay. The initial rates on federal student loans issued to new borrowers are recalibrated once a year, so it’s not uncommon for borrowers to have different interest rates for the federal student loans they take out each year they’re in college. Once taken out, rates on federal student loans are fixed for life.

Qualify with FAFSA

Everyone taking out the same type of loan at the same time pays the same rate. While rates on federal student loans for undergraduates can be tough to beat, they are higher for graduate students and parents. You can qualify for federal student loans by submitting a Free Application for Federal Student Aid (the “FAFSA”).

Benefits and protections

Federal student loans offer borrowers a number of benefits and protections — such as loan deferment, loan forgiveness and repayment options — that most private lenders often can’t match. However, more private lenders have begun adding similar programs to better compete with federal loan offerings. Most private student lenders offer a choice of fixed or variable-rate loans, and many offer a choice of repayment plans, including the option to defer payments until after leaving school.

The cost of attendance

With a private student loan, you may be eligible to borrow up to 100% of what your school says it costs to enroll and attend classes (the “cost of attendance”), minus other aid and loans you’ve already received. Private student loans are often used to cover the gap between what a student receives in federal student loans and what it costs to attend a school, including living expenses. Once students have hit their limits on the most affordable federal student loans, private loans can be competitive with costlier federal PLUS loans.

Limits vary by lender

How much you can actually borrow is determined by the private lender’s underwriting rules. These vary by lender and, as is the case with federal student loans, can include annual or cumulative borrowing limits. Other private lender criteria that can affect how much you can borrow include your credit history, the credit quality of your co-signer, your school’s cost of attendance, the degree you’re earning and your corresponding expected income with that degree.

You may need a co-signer

Yes, but not necessarily on your own. While most federal loans are credit independent, private student loan rates are determined by your credit history. Many students don’t qualify for private loans on their own because they don’t have a credit history, or they have bad credit. If that’s your situation, you may need to add a co-signer to qualify for a private loan.

A co-signer can help lower your interest rate

Private student loans require a credit application that examines income, employment, and a credit report. The lower your credit score, the higher the risk for the lender, which translates into higher interest rates. One way to get approved for a loan with a lower rate can be to add a co-signer with better credit to your application.

Compare co-signers for the best rate

Credible makes it easy to invite a co-signer to your application and even compare multiple co-signers to see which one gets you the best rate.

Most students have a co-signer

It depends, but in most cases, yes. More than 9 of 10 private student loans taken out by undergraduate students are co-signed. Graduate students are more likely to take out loans without one. You do not have to add a co-signer unless you are under the age of majority in your state (usually between 18 and 21). However, if you have a limited or poor credit history or a poor credit score, a lender may require you to add a co-signer to balance out their risk on the loan. Adding a co-signer with good credit can improve your chances of qualifying for a private student loan. In general, the better your co-signer’s credit, the better the rates you can qualify for. Credible makes it easy to compare co-signers to see which co-signer can get you the best rate.