Best Student Loans and Lenders in July 2022
Choosing the right student loan provider can help protect your future earnings from exponential interest and fees. In this guide, we review three of the best-rated private lenders for student loans and provide details about how to fund your undergraduate or graduate degree or certificate program.
Top Lenders for Private Student Loans
Although Credible does not directly provide student loans, the platform allows you to compare rates from up to 12 private lenders with one application. You can access fixed-rate loans from partners such as Sallie Mae with APR from 2.91% to 12.99% and variable APR loans from 0.99% to 11.98%, with no origination fees or penalties for paying off your loan early.
Credible communicates a mission of transparency and privacy and says it will not sell your information or provide biased partner reviews. You can see the actual rates without a credit check, alleviating the concerns you may have about low APR “bait and switch” offers. Most borrowers complete the initial application process and receive rates in three minutes or less.
Credible lenders allow you to finance up to 100% of your eligible college costs. You can also apply along with a cosigner to improve your chances of approval by a reported 300%. In addition, you can take advantage of a Best Rate Guarantee with a $200 incentive if you find a better APR elsewhere.
With a flexible loan from Sallie Mae, you can borrow enough to cover all your college expenses after financial aid, whether you plan to study online or on campus. This lender offers fixed-APR student loans ranging from 3.50% to 12.60%. Variable loan APRs range from 1.13% to 11.23%.You may be able to access a better rate by adding a cosigner, such as a parent, to your Sallie Mae loan.
Unlike some companies, Sallie Mae offers loans for both full-time and part-time students.
As a bonus, your loan comes with a four-month membership to Chegg, an online study resource.
Repayment terms for Sallie Mae range from 10 to 20 years. These student loans do not have origination fees or prepayment penalties. After graduation, you can choose from multiple repayment options depending on your income and preferences.
Earnest offers flexible repayment terms for private student loans, private refinance loans, parent loans, and refinancing of federal Parent PLUS. In fact, you can choose both the amount of your monthly payment and the length of your loan term, with options including 5, 7, 10, 12, or 15 years.
With Earnest, available fixed interest rates start at 2.99% APR and variable interest rates at 0.99% APR when you sign up for autopay. You can borrow up to 100% of the total cost of your college or university attendance with no reported maximum limit.
You must have a credit score of at least 650 to qualify for private student loans through Earnest. Undergraduates must attend school full-time, but part-time loans are available for graduating seniors and graduate students. You cannot obtain a loan through Earnest if you live in Nevada.
U.S. News and World Report name this company the best private student lender for those with fair credit. Earnest also has accreditation and an A rating from the Better Business Bureau.
Earnest does not charge prepayment, origination, or late payment fees. It offers an extended nine-month grace period for repayment after graduation, available financial hardship forbearance, and the ability for accounts in good standing to skip a payment annually.
Federal vs. Private Student Loans
You may be unsure whether you should rely on federal or private student loans to fund your education. Understanding the rules for these loans can help you make a plan that fits your financial situation. Many students use a combination of federal and private loans to finance their degrees.
Here are the main differences between federal and private student loans at a quick glance:
|Federal Student Loans||Private Student Loans|
|Subject to annual government-set maximum limit||Can fund up to 100% of education cost|
|Require FAFSA application, but no credit check||Require credit check with score of 670 or higher or cosigner|
|Interest rates set by federal government for various types of federal loans||Interest rates set by lenders and vary based on credit profile and other factors|
|Forgiveness and forbearance programs widely available||Limited forgiveness and forbearance programs available|
|Collection starts 270 days after payment default||Collection may start 30 days after payment default|
Federal student loans have a low maximum APR set by Congress each year. Many families prefer federal loans because they can access a lower interest rate than with private student loans. However, federal loans typically do not cover the full cost of a college education.
You can only borrow a certain amount in subsidized and unsubsidized federal loans every year. The U.S. Department of Education adjusts the annual maximum, which is usually higher for students whose parents do not have the credit score or income to qualify for a federal Parent PLUS loan.
To start the college financial aid process, most families fill out the Free Application for Federal Student Aid (FAFSA). Based on income and family size, you may qualify for subsidized federal loans, which have the lowest interest rates.
FAFSA funds become available on a first-come, first-served basis each year on October 1. Completing your paperwork as soon as possible after the deadline improves your chances of qualifying for federal student loans.
The federal government pays the interest on subsidized loans as long as you remain in undergraduate, graduate, or professional school at least 50% of the time. You also benefit from subsidized interest after leaving school for any reason for six months and anytime you can demonstrate financial hardship.
Unsubsidized federal student loans also have low interest rates but accrue interest while you are in school and after you graduate. In other words, the government does not pay the interest on your behalf. However, you do not have to begin repaying the principal and interest until six months after you graduate or leave full-time school.
Federal student loans do not require a credit check since most high school graduates and college undergraduates have limited or no credit history. However, private lenders require you to meet certain credit score requirements or have an eligible cosigner willing to guarantee your loan. Both federal and private lenders may charge origination fees.
Federal lenders must offer deferment and forbearance options for borrowers who run into financial difficulties. Some private lenders provide these programs as well. Many federal student loans are subject to forgiveness programs for those in certain professions, but private student lenders rarely have similar options.
Private student loans are subject to default and financial collection within 30 days of nonpayment. Federal student lenders must wait 270 days before collecting outstanding debt. However, unlike private lenders, they have the right to seize your paycheck or tax refund to collect past-due student loan debt after the 270-day mark.
While many private lenders offer large student loans or even cover all your education expenses, avoid borrowing more than you can repay comfortably. One common rule of thumb recommends limiting your loans to your projected earnings in your first year of your career. Research the median salary in your industry, area, role, and target company to get a realistic picture of how much you can affordably borrow.
How Do Private Student Loans Work?
Unlike the federal student loan process requiring the FAFSA, the private student loan process starts with a standard loan application. Both traditional and online lenders review your credit to determine the risk of offering you a private student loan. If you have a good or excellent credit score, you can access the lowest interest rates.
You can easily see what types of loans you qualify for and compare interest rates side by side on Credible.
As the student, you usually have to be the primary borrower on a private student loan. However, many lenders allow you to apply with a responsible cosigner, such as a parent or guardian who has good credit. A few private lenders allow a parent, guardian or relative to obtain a student loan on your behalf.
When you receive approval for a private student loan, you can often decide whether the lender will send the funds to you so you can pay your tuition and expenses or directly to your college or university. You may also have flexible repayment options. For example, you can begin making payments before you graduate to lower the overall cost of your loan.
Some private lenders offer multi-year approval. With these programs, you do not have to reapply for loans each semester or year. The lender will disburse funds to cover the full cost of your education on the established schedule.
After evaluating the loan offer, you must sign a master promissory note to accept the loan. You can usually do so online. Next, the lender will confirm your attendance at the college or university before disbursing the funds.
Signing the loan document means that you have entered a legal contract. The lender can take action to collect, such as garnishing your wages, if you do not repay with interest as agreed. Carefully review all terms of the loan and make sure you understand your obligations before you sign.
Who Can Qualify for a Private Student Loan?
Each lender has its own eligibility requirements for private student loans. Most require you or a cosigner to have a FICO credit score of at least 670, which puts you in the average range. However, you can qualify for better interest rates if you have a good or excellent credit score (usually 720 or higher).
In addition to your credit score, private lenders also review your debt-to-income ratio, or DTI. This number compares your monthly debt payments to your monthly income.
If your DTI is too high, you may be unable to qualify for a private student loan. In this case, adding a cosigner can decrease the overall DTI, possibly making you eligible. You can also consider this route if you do not have income because you do not plan to work while attending school.
To apply for a private student loan and check your eligibility, you will need to provide the following information for you and any cosigners:
- Tax returns
- Proof of income, such as paycheck stubs, for all income sources
- Mortgage statements or rental lease
- Valuation information for real estate and other assets
- Home address and contact information
- Social Security number
You must also provide information about the college and degree program you will attend, the total cost, and the amount you plan to borrow. Most lenders require you to provide proof that you are at least 18 years old and a U.S. citizen.
When Should You Consider Applying for a Private Student Loan?
Most students should max out available federal loans before applying for private student loans. Federal loans have a lower APR but do not cover 100% of the cost of most undergraduate and graduate degree programs. Private student loans may help you bridge that gap.
Unlike the FAFSA, which has an annual deadline, you can complete a private loan application anytime during the calendar year. However, you should start the process at least 90 days before your first tuition payment is due so you have the funds in time to register for classes. Loans for living expenses have a more flexible timeline based on your needs.
If you find yourself in a time crunch, some online lenders offer fast financing for qualifying students. You can easily view loan offers on Credible to see which can come in the fastest. However, it still usually takes up to 10 business days for the loan company to certify your enrollment information with your college or university.
How Does Student Loan Interest Work?
Knowing how private lenders calculate interest on student loans can help you understand the true cost of a loan offer. The answer to this question depends on the terms and conditions of your loan. Review the contract and look for:
- The total amount you are borrowing
- The interest rate the lender will charge, expressed as the annual percentage rate (APR)
- Whether interest accrues each day or each month
- When the lender adds the accrued interest to your loan balance
The lender divides your APR by 365 to reach a number called your interest rate factor. For example, if you qualify for a private student loan with an APR of 10%, your interest rate factor is about .00027.
Next, the lender multiples the interest rate factor by your loan balance and the number of days since your last payment to calculate the total interest to charge you for the period in question. Returning to the example above, let’s say you have a balance of $10,000 and paid your last bill 29 days ago.
- .00027 x $10,000 = about $2.74
- $2.74 x 29 = $79.45
For a student loan with monthly accrual, your new balance would be $10,079.45. While this example does not account for all the specifics of private student loan interest, you can see how the cost of the loan increases with a higher interest rate, and how repaying your loan early can potentially save you tens of thousands of dollars.
Some lenders begin capitalizing, or adding, interest as soon as they send the loan funds to your school. Other lenders offer a grace period and do not charge interest until you graduate. Be sure to understand how your student loan interest will accrue and capitalize before agreeing to a loan.
As you pay down your loan, the amount you pay for interest goes down as you reduce your principal balance. Adding even just a few dollars toward your principal each month can significantly lower the total amount you pay for interest over the life of the loan.
How Can You Choose the Best Private Student Loan?
To find the right private loan for your education, contrast terms and conditions from several different lenders. Some of the factors to consider include:
- Annual percentage rate (APR), which includes both the interest and fees charged for the loan
- Whether the APR is fixed for the life of the loan or changes after an initial fixed period (variable)
- Available financial security features such as loan deferment and forbearance options if you lose your source of income
- Available loan terms, providing the ability to lower your monthly payments with a longer loan repayment or reduce the amount of total interest you pay with a shorter term
- Eligibility requirements, including minimum credit score and DTI
- The ability to add a cosigner to your loan
- The reputation of the lender based on reviews from customers and industry organizations
- The ability to check your eligibility without impacting your credit
Why Should You Consider an Online Lender?
Online private student loans often have lower interest rates and fees than comparable loans from traditional banks and credit unions. With online lenders like Credible, Sallie Mae, or Earnest, You can also typically get a quote in just a few minutes without an impact to your credit score with the online prequalification process. Most lenders use a “soft” credit check to learn about your ability to repay the loan.
Most borrowers find that online loans provide speed, security, and convenience. However, you may prefer a traditional loan if you like to work with a local bank or credit union and visit the location in person.
What Can Private Student Loans Be Used For?
Typically, private student lenders allow you to borrow up to 100% of the total cost of attendance. This number, provided by your college or university, estimates the average amount you will spend each year for living expenses such as room and board along with tuition and fees.
You can use most private student loans for living expenses in addition to tuition, fees, and textbooks. Read the terms and conditions of the loan offer to learn about approved and excluded uses for the funds. Most private student lenders allow you to pay for:
- Housing, whether in a dorm room or in an off-campus apartment or home
- Technology such as a personal computer to use for educational purposes
- Public transportation to travel to and from school or the cost of maintaining your personal vehicle and paying for gas
- Supplies such as software, books, and notebooks
- Meals, either through the college dining facilities or cooking for yourself
- Daycare expenses if you have young children and need a babysitter to attend classes
Common exclusions include restaurant and take-out meals, entertainment, clothing, gym memberships, travel outside of essential trips to complete your degree program, and purchase of a vehicle.
Different Types of Private Student Loans
In addition to the main broad categories of fixed-rate and variable-rate private student loans, you may want to consider niche financing for special circumstances. Specific subtypes of private student loans include:
- Private loans obtained through state-level government agencies, which may have lower interest rates than other private loans
- Financing for professional schools such as medicine, dentistry, or law, which typically have costs far exceeding those of other graduate programs
- MBA program loans for students pursuing business degrees
- Income-share loans, which charge a percentage of your monthly income rather than a fixed payment
- Loans for international students attending schools in the United States, since their lack of credit history makes it difficult to apply for a traditional student loan
- Private student loans designed for borrowers with less-than-perfect or nonexistent credit
- Parent loans for parents or guardians who want to borrow for their child’s education
- Bar study loans to fund courses and living expenses for law school graduates who are studying for the state bar exam
- Loans to cover living expenses for students in medical, dental, or health professions residency programs
- Loans for students pursuing trade certificates and non-degree programs at technical schools and similar institutions
How Can You Refinance a Student Loan?
You may want to refinance your private student loan if you can qualify for another loan with a lower interest rate than your current loan. This commonly occurs after graduation when you have the income to improve your credit and become eligible for better loan terms.
Some of the most common ways to save money by refinancing a private student loan include:
- Taking out a low-interest home equity loan
- Applying for student loan refinance or consolidation with a private lender
- Using a low-interest credit card, such as a 0% introductory rate
Do the math to make sure you will actually save money by refinancing your student loan. Some student refinance loans lower your payments by extending the loan term, which means you’ll pay even more in interest over time.
Most lenders require a credit score of at least 650 and DTI below 50% to qualify for a student refinance loan. As with other types of loans, a higher score will result in a better interest rate.
What’s the best lender for student loans?
Credible offers an ideal starting point if you’re new to the private student loan process. You can immediately learn about eligibility and available loan terms without impacting your credit. With the company’s best rate guarantee, you can save time you might spend shopping around for lower APRs.
How are interest rates determined for private student loans?
Private lenders like Earnest and Sallie Mae set interest rates based on your credit profile. They charge more if they think you have a higher risk of defaulting on the loan. Improving your credit qualifies you for a lower interest rate. General economic factors, such as the prime interest rate set periodically by the Federal Reserve, also influence the cost of private student loans.
What is a good interest rate for a student loan?
If you have an excellent credit score (740 or higher), you may qualify for private student loan rates as low as 0.99% for a variable loan and 2.99% for a fixed-rate loan. With average credit, expect to pay 10 to 13% interest on a private student loan. Improving your credit score can help you become eligible for more affordable rates.
Do student loans go directly to the student?
Most private lenders disburse the funds directly to your college or university. The financial aid office will refund the portion of the loan that exceeds your tuition and fees. You can also look for a direct-to-consumer loan. These private student loans go right to your bank account so you can pay your tuition, fees, and living expenses.
Should I rush to pay off my student loans?
As long as your loan does not have a prepayment penalty, you can potentially save thousands of dollars by repaying your private student loan early. Extra payments toward your principal balance shorten your loan term and reduce the amount of interest you will pay over time. Be sure to repay higher-interest debt before tackling your student loans.
Which fees should I look out for when choosing a student loan?
Common private student loan fees to avoid include origination fees when you open the loan, late fees, returned payment fees, application fees, and prepayment penalties. Some lenders charge fees if you opt for paper billing or decide to refinance your loan balance. When you’re looking at loan offers on a site like Credible, you can easily compare all the details.
Will I need a cosigner for a private student loan?
You may need a cosigner if you have limited income, limited credit history, a high DTI, or a credit score below 680. Many student borrowers require cosigners for private student loans, especially those who attend college or university directly after high school. If you do not have a cosigner, work on building your credit to qualify for a student loan.