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College can be a big expense. Luckily, you have many options for how to pay for it all. While you or your student can apply for scholarships, grants, and federal loans, sometimes that still won’t be enough. A private student loan gives you another way to cover the full costs of college, helping you close the gap on your college funding.
What is a private student loan?
A private student loan is a personal loan designed to help you make up the difference between the actual cost of education and the money you have available, such as savings, scholarships, grants, and loans. In contrast to federal student loans, which are funded by the government, private student loans are available through a variety of funders, including credit unions, banks, and other institutions. Money from a private student loan can be used to cover the cost of tuition and fees, room and board, books and supplies, and other eligible expenses. Every lender has different rules; some may even allow you to use the private student loan funds to pay for food, childcare, and other expenses.
Unlike federal student loans, a private student loan is not need-based; these loans are granted based on whether you meet the lender’s requirements. Interest rates and loan terms are often determined by your credit score, credit history, and other factors. Good credit will help make you eligible for a lower interest rate and better loan terms.
Who should consider a private loan?
We encourage you to prioritize your funding sources by starting with “free.” In other words, first try to maximize your use of “free money,” which includes scholarships, grants, and other funds that do not need to be repaid. If the situation allows, you or your student may also consider applying for work-study.
Next, see if you qualify for available federal funding by filling out the Free Application for Federal Student Aid (FAFSA). The information you provide qualifies you or your student for need-based funding and determines eligibility for federal grants and loans. In addition, many colleges and universities use FAFSA data to award their own financial aid packages. Some also require it for merit-based awards like scholarships.
However, not everyone qualifies for scholarships, grants, or federal loans, and the amounts you may receive are limited. If this is the case and you still need money to pay for college, consider applying for a private student loan.
How does a private student loan work?
A private student loan is a personal loan that typically requires an application and a credit check. The lender uses this and other information to decide whether they will approve the loan and determine the interest rate and loan terms. Better interest rates are available for those with good credit, many lenders look for a credit score of 650 or higher, a good credit history, and a steady income. This means that full-time students may need someone like a parent to co-sign for their private student loan.
Private student loans are typically designed for full-time students, but there are options for part-time students as well. The amount of the loan cannot exceed the actual cost of eligible college expenses.
Types of private student loans
There are many ways to pay for college, and many types of private student loans. Some are designed just for the unique needs of undergraduate students while others are set up for students seeking a specific secondary degree. There are also private student loans for people attending a trade school.
Global Credit Union has partnered with Sallie Mae® to provide a variety of private student loan options with competitive rates for members, including:
- Smart Option Student Loan®
- Graduate School
- MBA
- Medical School
- Dental School
- Graduate School Loan for Health Professions
- Law School
- Trade School
Repaying a private student Loan
It’s important to understand that while private student loans may give you flexibility, they must still be repaid. Late or missed payments can have a negative impact on your credit, and a poor credit score is not what you want when you’re just starting out after college.
Private student loans offer many repayment options, so it pays to shop around. For example, payment terms, which vary from lender to lender, can range from 5 to 20 years. Many private student loans require payments to begin while you’re still in school, but some allow you to defer payment until after you complete your studies. Some lenders offer discounts for automatic payments, and others let you make interest-only payments for a certain amount of time after you leave school. You have choices, so make sure the loan works with your situation.
Advantages and disadvantages of a private student loan
| Pros | Cons |
| Provides funds needed for college expenses after other sources have been utilized. | You need good credit to qualify. |
| If you have excellent credit, you may qualify for favorable interest rates and payment terms. | Your loan may require a co-signer, especially if you’re young and lack credit history. |
| Flexible; available with fixed or variable interest rates and higher borrowing limits. And they can be refinanced later. | You’ll have fewer government-backed repayment and forgiveness options than with a federal student loan. |
| You can apply any time, even during the current school year, and lenders typically provide quick access to funds. | Some lenders require that you begin making loan payments while you’re still in school. |
As with all things, there are pros and cons of getting a private student loan.
If you do decide to move forward and refinance your student loans, sooner may be better because refinancing to a lower interest rate now will provide benefits over the entire loan term, for savings that really add up. Plus, you can refinance multiple times, so if your salary has increased or if your credit has improved, this may be a good time to consider it again to see if you now qualify for better terms.
The sooner you lower your interest rate, the more you can save.
Next steps?
Like all financial decisions, think carefully when deciding whether to apply for a private student loan.
Always start by submitting the FAFSA. This will identify any need-based federal grants and scholarships you qualify for; it may also make you eligible for financial aid packages from your school. Also apply for federal student loan opportunities. These loans often come with flexible repayment or loan forgiveness options like public service loan forgiveness and income-based repayment plans—protections which are typically not available with private student loans.
But if you still need funds, consider a private student loan instead of draining your emergency savings or using a credit card to pay for college. Consider applying with a co-signer to get a better interest rate. And most important, know that things like interest rates, payment terms, and other features vary by lender, so be sure to choose a loan and a lender that meets your needs. For example, Sallie Mae loans offer competitive variable and fixed interest rates, no origination fee or prepayment penalties, and several repayment options.
Both federal and private student loans provide funding options for your college education, and each bring specific advantages. If you decide a private student loan is right for you, make sure to understand your alternatives, compare interest rates and payment terms, and consider payment terms before you move ahead.
Private versus Federal Student Loans: What are the Differences?
| Private Student Loan | Federal Student Loan |
| Credit-based loan approval | Needs-based loan approval |
| Funded by private institutions like credit unions, banks, or others | Funded by the federal government |
| Fixed or variable interest rates | Fixed interest rate |
| No FAFSA required | FAFSA required |
| Some flexible payment options, but typically more limited | Comes with federal repayment and loan forgiveness options, including the ability to trade loan repayment for public service |
| Credit check required | No credit check required except for PLUS loans (non-need-based loans offered to parents for their children’s college expenses) |
| May require a co-signer to get the best possible interest rate | No co-signer required |
| Interest rate depends on credit score and income; may be higher or lower than a federal student loan | Rates are set by federal law |
| Can be refinanced | Can be refinanced, but you’ll lose access to repayment and loan forgiveness options |
| Interest may be tax deductible | Interest may be tax deductible |
| Potentially higher borrowing limit | Borrowing limits depend on your year in school and whether you are a dependent; these loans also have lifetime limits |
