Ultimate Guide to Private Student Loans

An undergraduate private student loan is a type of loan that is offered by private lenders, such as banks or financial institutions, to help students pay for their college education after exhausting all other federal aid. These loans typically have different interest rates, repayment terms, and requirements than federal student loans, and often require a credit check and a cosigner.

More: Best private student loans for undergraduate students.

A graduate private student loan is a type of loan that is specifically designed for students pursuing a graduate or professional degree, such as a master’s or doctorate. These loans are offered by private lenders, such as banks or financial institutions, and typically have different interest rates, repayment terms, and requirements than federal student loans, and may require a credit check and a cosigner.

More: Best private student loans for graduate students.

Students who aren’t United States citizens generally won’t qualify for federal student loans (unless you’re an eligible noncitizen). An international private student loan is a type of loan offered by private lenders to help international students pay for their education in the United States. These loans typically have different requirements and terms than loans for domestic students and may require a creditworthy cosigner or additional documentation to be eligible.

More: Best private student loans for international students.

A parent loan is a loan for parents, guardians, or sponsors to help cover the cost of a student’s education. It differs from a cosigned loan because only the parent (not the student) is responsible for paying it back.

Parent loans tend to have higher interest rates than traditional student loans. However, parent loans can also come with higher borrowing limits, which could come in handy if the student is attending an expensive school and needs more financial aid than the US government offers. Parents with a strong financial profile (high income and strong credit score) may be able to qualify for an interest rate that’s lower than a federal Parent PLUS loan by cosigning a private loan or taking out a private parent loan.

More: Best parent loans.

Most federal student loans do not require a credit check, which makes them an attractive option for most students. If you require additional funding for your education, there are a few private lenders who provide loans specifically to borrowers with poor credit. These lenders will determine your eligibility based on additional factors such as where you go to school, what you’re studying, and your earning potential.

More: Best private student loans for students with bad credit.

The majority of undergraduate private student loans — over 90% — have a cosigner. A cosigner can help you get approved for a loan and get a lower interest rate. But if you don’t have a cosigner, don’t worry. There are a few lenders that assess your eligibility according to factors beyond credit history, making it more likely you’ll qualify on your own.

More: Best private student loans for students without a cosigner.

Medical student loans are a type of loan specifically designed for students who are pursuing a career in medicine, such as becoming a doctor, nurse, or other healthcare professional. Medical students with good credit may be able to get a lower interest rates through private student loans rather than federal loans.

But, if you work at a nonprofit hospital after graduation, you won’t be able to get your private student loan forgiven. With a federal student loan, you may be eligible for loan forgiveness through the federal Public Service Loan Forgiveness (PSLF) program.

More: Best student loans for medical school.

Law school student loans are loans designed specifically to help law students pay for their education. These loans are offered by private lenders and typically have variable or fixed interest rates, as well as different repayment options than federal student loans. To qualify for a private law school student loan, the borrower needs to have a strong credit history or a cosigner with good credit.

More: Best student loans for law school.

Dental school student loans are loans designed specifically to help dental students pay for their education. Dental students may also consider alternative financing options such as scholarships, grants, and work-study programs to help pay for their education.

More: Best student loans for dental school.

Private student loans are available to borrowers who meet the following criteria:

1.) Age and citizenship: You are a US citizen or permanent resident with a Social Security Number (although some lenders accept international students, with or without a US cosigner). You typically need to be at least 18 years old – or the age of majority in your state – and have a high school diploma or equivalent, like a GED.

2.) Enrollment: You must be accepted or enrolled in an eligible undergraduate, graduate, or professional degree program. This typically includes four-year colleges and sometimes includes two-year community colleges and trade schools.

3.) Credit history: You must have a strong credit score (mid-600s or higher) in order to be eligible. As your credit score increases, you’ll have more borrowing options and may receive a lower interest rate.

4.) Income: Most student lenders require you to have a steady source of income or employment.

If you don’t have a strong credit history or income, you may want to consider adding a creditworthy cosigner to increase your chances of eligibility.

Eligibility criteria for private student loans may vary among different lenders, so it’s important to research and compare different options to find the loan that best fits your needs. Sparrow can help you streamline the search and comparison process.

Note: There are a handful of private lenders that don’t require borrowers to meet the criteria above. To check your eligibility with these lenders, submit Sparrow’s two-minute form.

More: Who is eligible for a student loan?

Here are the steps to apply for a private student loan:

1.) Prequalify with Sparrow: Sparrow’s free search engine allows you to compare prequalified rates from multiple lenders, without impacting your credit score. We’ll help you compare interest rates, repayment terms, and other loan features. If your credit score is not strong enough to prequalify on your own, consider finding a creditworthy cosigner to increase your chances of prequalifying. Once you’ve found the right loan, we’ll bring you to the lender’s website to start the official application process.

2.) Complete the loan application: Before you apply with the lender, make sure you have all the required documents, such as proof of income, enrollment, and identity. Once you’ve got all the required documents, fill out the loan application, including information about yourself, your cosigner (if applicable), and your school.

3.) Wait for loan approval: The lender will review your application and make a decision on whether to approve your loan. This process can take several days to a few weeks.

4.) Receive loan funds: If approved, the lender will disburse the loan funds directly to your school. The school first applies your loan money toward your tuition, fees, and room and board. Any money left over is paid directly to you for other education expenses. Loan funds are usually disbursed at the beginning of the academic period (semester, trimester, etc.).

Note: Always thoroughly read and understand the terms and conditions of the loan before you sign any loan agreements or promissory notes.

More: How to apply for private student loans.

Unlike most federal loans, with private lenders, you can borrow up to 100% of the school’s certified cost of attendance. To determine how much you can borrow, lenders look at your income, credit score, current major, future projected income, and whether or not you have a cosigner.

That exact amount varies by lender, but private student loan limits are generally based on a total loan amount ranging from $75,000 to $120,000 for undergraduate students and $150,000 to $300,000 for graduate or professional students. Graduate and professional students can typically borrow more due to higher education costs and expected earnings.

More: Student loan limits: how much can you borrow in student loans?

Private student lenders offer several different repayment options (not all of these options are available for all loan products or from all lenders):

1.) Immediate: Full payments begin shortly after the loan is disbursed.

2.) Interest Only: Pay only the interest while you are in school.

3.) Flat / Fixed In-School: Make a fixed payment (typically $25) of both interest and principal, lower than a full payment, while you are in school.

4.) Fully Deferred: Payment is completely deferred until after you graduate, typically for a period of six months. But, interest starts accruing as soon as funds are disbursed.

More: The best repayment plan for private student loans.

The current private student loan interest rates can vary widely depending on the lender, the loan terms, and the borrower’s financial situation. As February 2023, private student loan interest rates can range from as low as 3% to as high as 15% or higher.

With Sparrow, you can submit a single form and quickly compare loan rates from multiple lenders so you know exactly how each loan offer stacks up.

More: Best private student loans.

You are responsible for paying the interest on a private student loans during all periods.

Unlike federal student loans, most private student lenders do not charge fees.

With that said, here are some fees to look out for:

1.) Application fee: Some lenders charge an application fee for processing your loan application. This fee can be a flat rate or a percentage of the loan amount.

2.) Origination fee: An origination fee is a fee charged by the lender for originating or processing your loan. This fee is typically a percentage of the loan amount and can range from 1% to 6% or more.

3.) Late fee: If you miss a loan payment, you may be charged a late fee. The amount of the late fee can vary depending on the lender and the loan terms.

4.) Prepayment penalty: If you pay off your loan early, some lenders may charge a prepayment penalty. This fee is designed to compensate the lender for the interest they will lose if you pay off your loan early.

While most lenders don’t charge fees, it’s important to carefully review the loan documents before you sign to understand the full cost of the loan.

The eligibility requirements for student loan refinancing vary by each lender. In general, to be eligible to refinance your student loans, you typically need to meet the following criteria:

1.) Credit Score: Most lenders require a minimum credit score of 660 or higher to refinance student loans. A higher credit score can also help you get a lower interest rate.

2.) Debt-to-Income (DTI) Ratio: Generally, you’ll need a DTI below 50% to be able to refinance student loans. The lower your DTI, the better your chances of qualifying and getting a low-interest rate. Lenders determine the debt-to-income ratio, or DTI, by dividing your total monthly debt payments by your gross monthly income.

If you don’t meet the criteria above, you may want to consider adding a creditworthy to help you qualify.

More: What credit score do I need to refinance my student loan?

Here are the steps to apply to refinance your student loans:

1.) Compare rates: Sparrow’s free search engine allows you to compare rates from multiple lenders, without impacting your credit score. We’ll help you compare interest rates, repayment terms, and other loan features. Once you’ve found the right loan, we’ll bring you to the lender’s website to start the refinancing process.

2.) Complete the application: After selecting a lender, you will need to complete an official loan application. This typically triggers a hard credit check, which gives the lender access to your complete credit report and may temporarily impact your credit score. You may also be required to provide additional information, such as your personal information (SSN & ID), financial status, and employment history.

3.) Sign and start repayment: If your loan application is approved, you will be asked to sign new loan documents and agree to the terms and conditions of the new loan. Once you have signed the loan documents, your existing loan will be paid off by your new lender and you will start making payments on the new loan. Before signing, make sure you fully understand the new loan terms and what you are agreeing to.

More: Guide on how to refinance student loans.

While exact amounts will vary by lender, in general, you can refinance as much student loan debt as you want, up to the amount of the loan balance.

Across all lenders on the Sparrow marketplace, here are the minimum and maximum refinancing amounts:

Minimum: $5,000

Maximum: $500,000

More: Student loan limits: how much can you borrow in student loans?

If you’re refinancing your student loan (federal or private), you’ll likely need to begin full payments shortly after the loan is disbursed. Look out for a note from your lender/servicer for more detailed information.

The current student loan refinancing interest rates vary widely depending on the lender, the loan terms, and the borrower’s financial situation. As February 2023, student loan refinancing rates range from as low as 3% to as high as 11% or higher.

With Sparrow, you can submit a single form and quickly compare loan rates from multiple lenders so you know exactly how each loan offer stacks up.

More: Best student loan refinance rates.

You are responsible for paying the interest on a refinanced student loan during all periods.

Unlike federal student loans, most private student lenders do not charge fees.

With that said, here are some fees to look out for:

1.) Application fee: Some lenders charge an application fee for processing your loan application. This fee can be a flat rate or a percentage of the loan amount.

2.) Origination fee: An origination fee is a fee charged by the lender for originating or processing your loan. This fee is typically a percentage of the loan amount and can range from 1% to 6% or more.

3.) Late fee: If you miss a loan payment, you may be charged a late fee. The amount of the late fee can vary depending on the lender and the loan terms.

4.) Prepayment penalty: If you pay off your loan early, some lenders may charge a prepayment penalty. This fee is designed to compensate the lender for the interest they will lose if you pay off your loan early.

While most lenders don’t charge fees, it’s important to carefully review the loan documents before you sign to understand the full cost of the loan.