The process of applying to college can be an exciting one with or without private student loans. Attending college fairs or meeting with representatives at your high school, participating in tours on college campuses, and exploring future career possibilities are all part of the college search experience and the first steps toward establishing your independence as an educated and working adult.

One of the more daunting aspects of applying to college, however, is securing the funding to pay for it. Unless you or your family have enough money to pay the rising costs of tuition out of pocket, you will need to apply for financial assistance, which might include borrowing money through a federal or private student loan.

A wide variety of loans are available to college students. Federal student loans through the government are the most common loans for undergraduate students. In some cases, though, you may not be eligible for federal loans because of your finances or immigration status or having already met the amount you are eligible to borrow. In these cases, you will likely pursue a private student loan.

These loans are funded through a private financial institution, usually a bank or a third party that partners with banks or credit unions to provide funding. As you navigate the application process, it is important to understand the difference between federal and private student loans, how to apply for them, and what to expect regarding the amount issued and the repayment options available.

Different Types of Student Loans

What is the difference between a federal and a private student loan?

A federal loan is funded by the national government whereas private loans are sourced through an independent lender, typically a bank or a credit union. Because there are laws that set the terms and conditions for federal loans, the interest rates tend to be fixed and borrowers have more flexibility for repayment than with private student loans. Federal loans require a different application process than private student loans and are easier for students to qualify for independently than private ones. While both loans have limits on the amount that students can borrow, private student loans do have higher annual and cumulative maximums than federal loans.

Which loan is better for students?

Typically, federal student loans are preferable for borrowers to private loans. Federal loans are easier for students to qualify for, and the lack of credit or poor credit history does not impact approval. These loans also do not require someone to cosign. Federal student loans have fixed interest rates and often the rates are similar or lower than the rates for private student loans. Government-funded loans also allow students to defer or claim a forbearance on the repayment of the loans under certain circumstances, allowing students a grace period while enrolled in further studies or when meeting the monthly payments becomes difficult. Additionally, there are many more repayment plans available for federal loans, including income-driven repayment (idr) and loan forgiveness for qualifying borrowers.

Are private student loans bad?

Private student loans are not bad. These loans provide funding for students to pursue their education when they do not qualify for federal loans or when these loans are not available. However, because this type of loan is provided through a private lender, the terms vary depending on the financial institution that is funding the loan. Additionally, these loans require proof of income and a credit history for approval. It can be very difficult for some students to get a private loan without the support of a cosigner who has strong credit. It is important to investigate and understand the terms of a private student loan prior to applying and accepting the funding.

Can students get private loans?

Students can get approved for private student loans, but the process can be more difficult than with federal ones. Often, these loans require proof of income or established credit, which many college students do not have. Therefore, a cosigner with a strong credit history is usually required to ensure for the private lender that the loan will be repaid. If there is no one available to cosign a loan, there are some financial institutions that will allow students to apply for a loan without one. However, the interest rates will likely be significantly higher than with a cosigned or federal loan.

Are Sallie Mae student loans federal or private?

Sallie Mae funded federal government student loans until 2010 and now offers private loans. The company was initially chartered in 1972 as an entity of the government to provide federal loans and then funded Federal Family Education Loan Program (FFELP) loans starting in 2004. While Sallie Mae presently offers information and guidance on both federal student loans and private student loans, it only services the latter.

How can I pay for college without my parents’ help?

Applying for the Free Application for Federal Student Aid (FAFSA) is the primary way to secure financial aid without the support of your parents. This application will determine your eligibility for different types of aid, including work-study opportunities, scholarships and federal student loans. Each of these forms of financial aid can be awarded to you without requiring your parents to cosign or contribute.

How Much Money Can I Borrow?

How much can I borrow in student loans?

The amount that you can borrow each year in federal loans is determined by several factors. If you are claimed as a dependent by a parent or guardian on their taxes, your cap is lower than a student who applies as an independent. The year in school you are seeking aid for matters, too. As a dependent first-year student in an undergraduate program, you are eligible to borrow about $5,500, while a dependent junior can borrow approximately $7,500. Lastly, the level of education also impacts the amount that you can borrow. Because graduate programs rarely provide alternate sources of aid, students applying for loans for advanced degrees can borrow much higher amounts than undergraduate students.

Private student loans have less stringent rules. The amount that can be borrowed is different depending on each lender’s rules, though a student can never borrow more than the full cost of tuition.

What is the maximum amount of student loans you can get?

The maximum amount of student loans that can be borrowed varies based on the student’s status as a dependent and the level of schooling a student is applying for. A dependent, undergraduate student can borrow over $30,000 in federal student loans over four years, while an independent undergraduate student can borrow around $58,000. Graduate students are allowed to take out a total of about $140,000 with the undergraduate loans included. Dependent students whose parents cannot obtain their own direct PLUS loan may qualify for additional loans. Students can also apply for additional loans beyond the maximum allowances once they have paid down any debt incurred from the initial borrowed funds.

Private student loans do not have a defined maximum for students to borrow. Each lender sets the parameters for their loan terms. Typically, however, students are not eligible to borrow more than the cost of their tuition.

How much money should I borrow?

While tempted to borrow as much money as possible to achieve your educational goals, you should not bury yourself in debt. You will repay that loan with interest, and depending on your future career and expected income, you might be paying off those loans for many years. A good step in deciding how much to borrow is to consider your tuition needs, any money that you and your parents are able to contribute, and any potential scholarships or grants that you might be eligible for. You should only apply for a loan big enough to cover the remaining balance, even if you are eligible to receive more.

Can you take out a student loan for living expenses?

You cannot take out a loan solely for living expenses, but some of your federal or private student loan can be used to cover these costs. With either federal or private student loans, the most that you will be eligible to apply for each year is the amount of tuition. If you do not need to put all of the money directly toward your education, the remainder of the loan can be applied toward living expenses, including housing or transportation.

Can I get a student loan with no credit?

If you do not have a credit history, an undergraduate federal student loan is your best option. Federal loans are not approved based on credit scores but rather use the FAFSA to compare your income and parents’ or guardians’ income and the cost of the tuition to determine eligibility. These loans also have the most flexibility with repayment, which can be important if you continue to struggle with establishing credit.

Acquiring a private student loan with no credit is much trickier. Financial institutions will often require a cosigner if you do not have the credit required to secure the loan on your own. Some lenders might fulfill private student loans with limited credit information, but these loans often come with steep interest rates.

How can I get money for college without loans?

There are many ways to get money for college without taking out student loans. The first step is to fill out the FAFSA, which helps to evaluate your family’s ability to contribute to your education and the cost of tuition for your intended school. Many schools offer grants and scholarships to students in need of financial aid or to those who qualify through merit-based measures. The FAFSA can also determine your eligibility for a federal work-study program. In exchange for working on campus or in the surrounding community, this program contributes a small sum toward your educational expenses and also pays you an hourly wage for the work that you complete.

About the Student Loan Application Process

How do you qualify for student loans?

To determine your eligibility for federal student loans, you must complete the FAFSA with information about your family’s finances, including federal tax documents and bank statements. The information from the FAFSA is used to determine if you qualify for federal assistance in the form of grants, scholarships, work-study or student loans.

For private student loans, the process is similar to applying for a line of credit. You will need to go through a bank or lender directly and complete their specific application. The financial institution will review your credit and financial history and make a determination based on their particular criteria. In some cases, you might only qualify for a private student loan if someone is willing to cosign for you.

Are there any student loans without a cosigner?

Some student loans do not require a cosigner. Although they require your parents’ financial information if you are a dependent, federal loans do not necessitate a cosigner. If you have established credit in good standing or have proof of steady annual income that meets or exceeds the amount you intend to borrow, you will likely have no trouble obtaining a private student loan without a cosigner. While many private lenders will require a cosigner if you have a limited or poor credit history, some financial institutions will grant a loan without requiring someone with strong credit to cosign. These loans typically have much higher interest rates, however, so it is important to do your homework on the different lending institutions to get the best terms for your loan.

Can you be denied a federal student loan?

You can be denied a federal student loan if you do not meet the eligibility criteria. To be approved for a federal loan, you must demonstrate a financial need, have United States citizenship and a Social Security number and be accepted into a school with an eligible degree or certificate program. Males are also required to be registered with the Selective Service. If you do not meet these criteria, you will likely be denied. Additionally, if you have met the maximum amount that you are allowed to borrow annually or in total, you may be denied until you pay down your existing student loan debt.

Understanding Private Student Loan Options

What banks offer student loans?

Many banks or financial institutions offer private student loans. Citizens Bank offers private loans for both undergraduate and graduate students. They also have private loans that parents can apply for to help cover the cost of their child’s schooling. Sallie Mae provides private funding for college students as well. In addition to undergraduate, graduate and parent loans, Sallie Mae offers loans to cover the cost of tuition for private K-12 schools, medical school, and other professional schools. CommonBond and College Ave, like Citizens Bank and Sallie Mae, offer a variety of loans for students pursuing their undergraduate education and some graduate level programs. All of these lenders also offer different repayment options and interest rates.

Several other banks provide reduced interest rates for loans with specific circumstances.

Citizens One

Citizens One bank offers discounted rates for those with existing accounts with the bank. This lender also offers loans up to $295,000, depending on your level of schooling as well as multi-year approval. Ascent Bank offers discounts for automated payments for both cosigned and independent loans. Additionally, this bank provides several repayment plans with an option of variable or fixed rates.

Wells Fargo

Wells Fargo Bank offers a reduction in interest rates to qualifying students when they or their cosigner also have another loan or banking account through the institution. Additional rate discounts are also available at Wells Fargo for those who set up automatic payments for their loans.

LendKey

There are also banks with helpful features and additional incentives. LendKey has a unique approach to student loans, connecting borrowers with a variety of lenders. Comprised mainly of credit unions and smaller community lending institutions, LendKey allows borrowers to find a tuition loan at a low and competitive rate.

Discover

Discover offers students cash back as a reward for their academic achievements while in school. This bank also provide loans for students completing higher education practical work, such as medical residencies or the bar exam. With all of the options available, it is easy to find the right private student loan for your needs.

Is Sallie Mae the best student loan?

For those in need of financial assistance through a private student loan, Sallie Mae offers several favorable terms. While most banks only finance loans to cover tuition for undergraduate and graduate programs, Sallie Mae will approve funding for medical and professional schools. Additionally, among the private student loan lenders, Sallie Mae has a relatively flexible set of repayment plans, including the ability to defer payments while you are in school. Sallie Mae also offers to reduce the interest rate on loans when the payments are automatically deducted from your checking account each month.

Which bank is best for student loans?

The best bank for your private student loans may be dependent on the facets of the loan that are most important to you. With terms, rates and repayment options that can be comparable with federal loans, Sallie Mae offers some of the most reasonable and affordable options for borrowers. College Ave provides competitive interest rates, with some of the lowest available from private lenders. This financial institution also processes applications and quickly provides decisions based on credit. CommonBond provides several different repayment options and has flexible payment plans. This lender also covers the expenses for a child’s education in a developing country for every loan it funds.

What are the best private student loans?

When looking for the best private student loan, you will want to consider many variables. A low interest rate is the top priority, as this will reduce the amount that you will owe long-term. Another important consideration is the repayment options offered by the lender. Banks that offer more flexibility with the length of the loan and the required monthly payments will be the best option if you should encounter financial hardships.

Additionally, look for lenders who allow you to defer your loan or to only pay interest while you are in school.

This will help you to focus on the purpose of the private student loan: your education.