If you’ve submitted your FAFSA, and the federal aid you’ve received in grants, scholarships, work-study, and federal student loans still doesn’t cover all your education costs, private student loans are an option.
Deciding whether to borrow private loans should be considered carefully since there are pros and cons of private student loans to be aware of before borrowing.
1. Pros of private student loans 2. Cons of private student loans 3. The bottom line
Pros of private student loans
Many banks or online-based lenders offer private student loans to undergraduate students or graduate students in need. Private loans can help in a number of ways.
Fills the gap to cover cost of attendance
Some federal student loan options — such as subsidized loans and unsubsidized loans — have loan borrowing limits that cap what students can borrow. These loan limits are based on your year in school, as well as if you’re currently an undergraduate student or graduate or professional student. Whether you’re considered a dependent or independent student also impacts the limit.
For example, first-year dependent undergraduate students may receive up to $5,500 per year in unsubsidized and subsidized loans, with no more than $3,500 being subsidized loans. Compare that to first-year independent undergrad students who may receive up to $9,500, also with no more than $3,500 being subsidized loans.
If your annual tuition costs exceed that limit, private loans can fill that gap. Private loans can cover your total cost of attendance and help ensure you can continue enrollment and obtain your degree.
FAFSA eligibility isn’t required
On top of loan limits to contend with, you might not qualify for all types of federal student loans. For example, subsidized loans are exclusively for undergraduate borrowers who can show a level of financial need. In other words, there are some eligibility requirements and paperwork, like the FAFSA, which these students must submit every year.
You don’t need to submit a FAFSA to qualify for private loans. Although private lenders have their own private student loan eligibility requirements and credit underwriting criteria, it doesn’t involve FAFSA or proving levels of financial need.
Possibly lower rates and fees than some federal loans
In general, federal loans can be attractive due to their benefits and typically low, fixed rate. However, not all federal loans offer a super low rate. For example, Grad PLUS and Parent PLUS Loans have higher interest rates, a couple of points higher than subsidized or unsubsidized loans. PLUS Loans also have steep fees alongside higher interest rates, which can make these loans more costly.
Depending on the loan amount, that couple of percentage points can mean paying a lot more in student loan interest over the life of the loan. Private loans tend to have both variable and fixed interest rates and may offer more competitive rates, at least compared to Direct PLUS Loans.
However, only borrowers with good credit are approved for the lowest rates advertised. A good credit score, in this case, can help you save. Additionally, private lenders might offer rate discounts in some cases or have lower fees.
More lender options to choose from
When you take on federal loans, you have one lender — the federal government. Although federal loans offer great benefits, there’s not much loan variability. Private loans offer the opportunity of choice.
You can shop between many different private lenders. Compare each loan offer’s rates, fees, perks, and repayment options to see which one benefits you as the borrower. Federal loans don’t give you the power of choice.
There are statutes of limitations in place
If you fail to make federal loan payments and end up in default, the government knows how to find you and recoup its funds. In fact, they can garnish wages up to 15% and even take funds from your tax return or Social Security benefit payouts.
Private student loan default isn’t as straightforward. Private lenders might sue borrowers for repayment, but there are statutes of limitations in place that cap how much time they can collect on unpaid debt.
According to Student Loan Borrower Assistance, a site by the National Consumer Law Center, this period is typically around six years. However, note that it varies by state. This strategy still isn’t advised, as it can damage your credit and may cause undue stress.
Cons of private student loans
Because these types of loans are from a private company and not the federal government, they’re not as flexible with repayment options. You also might find the benefits offered are limited.
Less flexible repayment options
Federal loans allow borrowers a multitude of repayment options, including income-driven repayment (IDR) plans. IDR plans let borrowers have more affordable monthly payments by limiting the amount of their income that goes toward repaying federal student loan debt (typically 10 to 20%).
This is a huge perk when income is lower during your career or during periods of unemployment. Some borrowers might qualify for $0 monthly payments to keep their student loan repayment affordable.
Private loans don’t offer income-driven repayment options and might offer fewer loan repayment plans overall. Additionally, there might be limited deferment or forbearance opportunities compared to federal loans.
No loan forgiveness
The absolute biggest downside of private student loans is that they don’t qualify for federal student loan forgiveness. The loan forgiveness programs in place aren’t extended to private loans, they’re reserved only for federal loans.
Federal loan borrowers have several options to get loan forgiveness, including the most recent loan cancellation, Public Service Loan Forgiveness (PSLF), and forgiveness through income-driven repayment. Private loans don’t get any of these amazing perks, unfortunately.
Might have variable interest rates
If you take on private loans, you may have the option to choose a variable interest rate. This might seem like a great deal if rates are low, but when interest rates increase, the cost of your variable-rate private loan climbs exponentially.
Federal loans, however, have fixed rates, so they don’t change regardless of economic rate fluctuations. Of course, this can be a downside for fixed, higher-rate federal loans like PLUS Loans. If lower rates are available in the private sector, it can prompt PLUS borrowers to refinance their private student loans. But in general, though, a variable rate loan might carry more risk due to up-and-down swings.
No federal subsidy
Federal loan borrowers who qualify for subsidized loans have the benefit of the federal government paying for interest at specific times, such as while in school. This is a wonderful perk to limit costs.
On top of that, borrowers with subsidized and unsubsidized loans paying back their loans on IBR, PAYE, and REPAYE might be eligible for a subsidy. In this situation, the government covers a portion of your interest for a period of time if your monthly payments don’t pay for all the interest that accrued.
The most generous subsidies are for REPAYE, where interest is covered on subsidized loans for three years, and half of the interest is covered for an additional three years. The government covers half of the interest on unsubsidized loans for all periods of repayment in which your monthly payment doesn’t cover the interest.
PAYE and IBR don’t cover any interest for borrowers with unsubsidized loans but have a similar three-year period where interest is covered for subsidized loans.
Typically requires a cosigner
Unless you have a stellar credit history, the fact is that you’ll likely need to apply for private loans with the help of a cosigner.
Cosigners aren’t just individuals who sign the application and use their credit to help you get approved. They’re legally responsible to repay the loan if you don’t.
Finding a family member or spouse to assume this responsibility might be difficult. If you find someone willing to co-sign, communicate clearly about rights and responsibilities. If your credit isn’t great, some lenders offer loans to borrowers with bad credit.
Might not be discharged upon death
Federal loans are discharged in the event that the borrower dies. Although many private lenders might discharge private loans in the event of death, some might go after payment through the deceased’s estate. It’s on a case-by-case basis, depending on the lender.
If you have a co-signer that passes away, you’ll likely still be on the hook for payment on the loan as the primary borrower.
To pay for college, the absolute first step is to submit your Free Application for Federal Student Aid (FAFSA). It offers a way to receive a financial aid package that can include awards you don’t have to repay, such as grants, as well as federal loans you need to repay.
If your award package isn’t enough to cover all of your school costs — and you or your family don’t have savings (beyond an emergency fund) to cover the remaining expense, private loans can help. Be aware that you’ll need a good credit history to qualify and may need a cosigner.
Research a handful of private lenders, and compare their interest rates, terms, fees and benefits before you submit an application.
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Competitive
interest rates VISIT SALLIE MAE Fixed 3.75 – 13.72% APR1 Variable 3.25 – 13.59% APR1 
Check eligibility
in 2 minutes VISIT EARNEST Fixed 3.47 – 13.03% APR2 Variable 2.80 – 11.69% APR2 
Large autopay
discounts VISIT ASCENT Fixed 4.12 – 14.75% APR Variable 3.04 – 13.30% APR 
Flexible repayment options VISIT COLLEGE AVE Fixed 3.99 – 11.98% APR Variable 2.49 – 10.97% APR
1Sallie Mae disclosures. Lowest APRs shown for Sallie Mae Loans: The borrower or cosigner must enroll in auto debit through Sallie Mae to receive a 0.25 percentage point interest rate reduction benefit. This benefit applies only during active repayment for as long as the Current Amount Due or Designated Amount is successfully withdrawn from the authorized bank account each month. It may be suspended during forbearance or deferment, if available for the loan.
2Earnest: All rates listed above represent APR range. Rate range above includes optional 0.25% Auto Pay discount. Earnest disclosures.