Private Loans

Private loans, also known as alternative loans, can be taken out as a supplement to federal financial aid. Students who have used up their Pell Grant money and taken out the maximum allotted amount in federal Perkins and Stafford Loans may borrow additional funds from a private lender. Private student loans may also be taken out by students who were not awarded federal student financial aid for college.

Interest Rates

Private loan rates rise and fall with the economy and vary from lender to lender. Each student lender sets their own interest rate and chooses what kind of borrower benefits their customers will receive. In contrast, federal loans are fixed at rates determined by the government. The interest rates on private loans are typically higher than those on federal loans, but lenders may choose to lower their rates or increase borrower benefits.

Borrowing Limits

The amount of money a student may borrow in private loans is usually greater than the amount that may be borrowed in federal loans. The chosen lender will be able to tell the student how much money they can borrow. For many private loans, the borrowing limit will be the student’s cost of attendance minus their other financial aid. Student federal loan limits are outlined in the award letter a student receives after submitting a FAFSA. By contrast, for the 2014-2015 year, the maximum Stafford Loan money a full-time dependent undergraduate student may borrow varies between $5,500 and $7,500 annually depending on the year in school. If a student’s parent is eligible to receive a federal PLUS Loan, they may be able to borrow more federally.

Choosing a Student Lender

Students who attend schools participating in the William D. Ford Federal Direct Loan (Direct Loan) Program borrow directly from the government, and will not need to select a student lender for their federal loans. (Due to recent expansion of the program, most - if not all - schools participate in the program.) When it comes to private loans, schools typically offer preferred lender lists that recommend lenders to students, but it is best to supplement school advice with personal research. Many student lenders are available, and they offer varying interest rates, borrower benefits and repayment guidelines. Schools are required to process loans from the student’s lender of choice without unreasonable delay, regardless of whether the lender appears on the school preferred lender list.

Private vs. Federal Loan Repayment

  • - Private lenders often require that students begin making payments once the initial disbursement has been issued. In cases where in-school forbearance is granted, interest will generally accrue.
  • - Federal Stafford payments may be deferred until six months after graduation. Interest does not accrue during this time.
  • - Parents who take out PLUS Loans must make the first payment within 60 days after the loan is fully disbursed. Graduate students who take out PLUS Loans may defer their loans until graduation, but interest will accrue during this period.
  • - Both federal and private loans usually have to be repaid regardless of a student’s situation, including bankruptcy. However, federal loans can be discharged under certain rare circumstances.
  • - Some federal loan forgiveness programs also exist for students who go into certain professions after graduation and meet other requirements based on the program.

Latest College & Financial Aid News

$43M in Loans Forgiven for Students of Closed Colleges

September 6, 2019

by Susan Dutca-Lovell

The federal government discharged more than $43 million in student loan debt for former students of recently closed for-profit colleges. Students who attended programs operated by Education Corporation of America, Dream Center Education Holdings, Vatterott College and Charlotte School of Law will be able to qualify for a full discharge of their federal loans if they were enrolled when their college closed or withdrew within 120 days of the official closure date and didn’t transfer to another institution, according to Inside Higher Education. [...]

College Board Backpedals - No Adversity Score to be Added

August 30, 2019

by Susan Dutca-Lovell

College Board is ditching its previous plan to capture socioeconomic information from students with a single score - also known as an "adversity score" - when scoring their SAT college admissions test. The score would have taken into account a student's socioeconomic background and the neighborhood in which they grew up. [...]

Female-Only Scholarships Under Fire In Higher Ed

August 20, 2019

by Susan Dutca-Lovell

Female-only college and university STEM programs are coming under fire for male discrimination as they attempt to "redress gender imbalance" in fields such as computer science and engineering. The U.S. Department of Education launched more than two dozen investigations into higher education institutions nationwide - including UC Berkeley, UCLA and USC as well as Yale, Princeton and Rice - which offer female-only scholarships, awards and professional development workshops. [...]

Last Reviewed: September 2019