Best Private Student Loans Of June 2024 – Forbes Advisor

Best Private Student Loans Of June 2024

Annual percentage rates (APRs) and account details are accurate as of June 3, 2024.

Summary: Best Student Loan Ratings Of June 2024

Tips For Comparing Private Student Loans

Do your due diligence as you prepare to borrow a private student loan. Experts recommend borrowing no more than what you’ll most likely earn in your first year out of college. This can protect you from having unmanageable monthly payments after you leave school.

When you review each lender and loan, consider the following factors:

• Loan amount. Loan amounts can vary depending on the lender and degree you’re pursuing. Some lenders offer to finance up to 100% of school costs, but using college savings, grants and scholarships can help reduce how much you need to borrow.
• Loan cost. The primary factor that impacts student loan costs is a loan’s annual percentage rate (APR), which varies depending on your credit. Most private student loans don’t have application or origination fees, but it’s worth checking for extra fees to understand the loan’s total cost.
• Repayment term. Loan terms typically range from five to 20 years. Shorter loan terms have higher payments but get you out of debt faster. A longer repayment term might have more manageable payments but will cost more in interest over time.
• Borrower benefits. Lenders might offer different perks to borrowers, such as interest rate discounts for using autopay. In some cases, lenders may also offer deferred payments until after you leave school and pause payments if you face financial hardship.
• Co-signer release. Applying with a co-signer who has good credit is one of the best ways to qualify for a low-rate private student loan. Some lenders also have a co-signer release policy, which removes your co-signer from the loan after you make a certain number of on-time payments.

The Complete Guide to Private Student Loans

Current Average Student Loan Rates

Student Loan Rate Yearly Trends

Private lenders typically determine student loan interest rates using a benchmark like the Secured Overnight Refinancing Rate (SOFR). The SOFR tends to align with the federal funds rate, which the Federal Reserve has increased 11 times since March 2022 in an attempt to cool inflation. As a result, interest rates on private student loans and other lending products increased. 

The Fed has indicated that rates will remain steady going into 2024 and may start to come down later in the year. 

How Do Student Loans Work?

Student loans can be used to pay for many school-related expenses, including tuition, room and board, books and school supplies, transportation and other common expenses. Once your loan application is approved, the funds are disbursed to the school to cover your balance. Often you can defer repayment until after leaving school, but interest may start accruing right away.

Federal vs. Private Student Loans

There are two broad categories of student loans: federal or private. Federal loans are offered by the U.S. Department of Education and, for most students, are the more attractive option. That’s because federal student loans offer things that most private lenders don’t, including:

• A fixed interest rate that isn’t based on your creditworthiness; all borrowers are offered the same standard rates
• More flexible repayment plans, including options that allow you to base your monthly payments on your income
• More lenient deferment and forbearance options
• Several loan forgiveness and loan discharge programs that you might qualify for

For these reasons, most borrowers turn to federal student loans first. However, private student loans can still be worthwhile in some circumstances. If you have excellent credit, for example, private student loans may offer better interest rates than the standardized federal rates. Private student loans can also be useful if you have gaps in your college funding and need extra cash.

The exact terms of private student loans vary by lender, but you can expect to find the following in many private loans:

• The ability to choose between fixed and variable interest rates
• A simpler application process
• Low or no origination fees
• The ability to add a co-signer if your credit isn’t sufficient

Pros and Cons of Private Student Loans

Borrowing a private student loan has its advantages, but there are also downsides to consider. Consider these pros and cons before you apply. 

Pros 

• Offers funding for tuition, fees and other expenses. A private student loan can help fill the gap after you’ve maxed out your eligibility for other financial aid. You can use private student loans to pay for tuition, fees, supplies, groceries, rent or other costs.
• May be able to borrow up to your school’s cost of attendance. Many private lenders let you take out as much as you need to cover your cost of attendance. By contrast, some federal student loans come with lower borrowing limits. 
• Low interest rates may be available for excellent credit. Creditworthy applicants may access interest rates starting around 4.5%. You can usually choose between a fixed and variable rate on a private student loan. 
• Provides funding for international students. International students aren’t eligible for federal student loans or financial aid but can qualify for a private student loan. 

Cons 

• May require a co-signer. You’ll need to meet a lender’s requirements for credit and income to qualify for a private student loan. Most undergraduates have to apply with a co-signer, such as a parent, to get approved for a loan. 
• Interest rates could be high. Interest rates can go up to 17% or higher, resulting in high borrowing costs. 
• Not as many protections as federal student loans. Federal student loans are eligible for various benefits, including income-driven repayment (IDR), deferment and forbearance. Private student loans may or may not come with these protections—terms will vary by individual lender. 
• Don’t qualify for federal loan forgiveness. Private student loans aren’t eligible for federal forgiveness programs, such as Public Service Loan Forgiveness, Teacher Loan Forgiveness or the loan forgiveness you can receive at the end of an IDR plan. 

How To Get the Best Private Student Loan Rates

Interest rates for private student loans fluctuate much more than their federal counterparts and are based on your credit profile, income and other factors. Here’s how you can qualify for the best rates, which may be lower than what you see on federal loans if you have strong credit.

How To Get a Private Student Loan

After maxing out your eligibility for federal financial aid, you might still have a gap in funding. That’s where a private student loan can come in handy. Here are the steps you’ll need to take to get a private student loan.

• Check your credit. You typically need good credit to qualify for a private student loan. Check your credit score and review your credit report so you know what you’re working with as you start the application process.
• Consider a co-signer. If you don’t have good credit or a source of income, you may need to apply with a co-signer. Speak with your co-signer about repayment expectations to ensure you’re both on the same page about sharing responsibility for the loan.
• Compare lenders. Take some time to compare multiple lenders, including banks, credit unions and online lenders. Some lenders let you check your rates through prequalification, which won’t impact your credit.
• Choose an offer and apply. As you compare loan offers, look for a loan with a low interest rate, low (or no) fees and flexible repayment terms. Once you’ve found an offer you want to move forward with, submit a full application. You can usually apply online and may need to provide documentation with your personal information, such as W-2s, tax returns, ID and proof of address.
• Sign your loan agreement. Your last step is to sign your loan agreement and finalize the loan. Read over the details of the contract carefully so you understand the rates and terms of your loan, as well as when your first payment is due.

How To Apply for a Private Student

Consider private loans if you’ve reached the annual or aggregate limits for federal student loans and need to borrow additional funds. The private student loan application process can take several weeks or even months, so most lenders recommend applying at least two months before your tuition due date.

To apply for a private student loan, follow these steps:

1. Review your credit. Private student loan lenders typically perform credit checks, and you’ll need good to excellent credit to qualify for a loan (or have a creditworthy co-signer). Before applying for a loan, review your credit reports at AnnualCreditReport.com, where you can access your credit report for free until December 2023, to ensure all the information on those reports is correct.
2. Find a co-signer. For the 2022-2023 academic year, 90% of undergraduate loans issued were co-signed. A co-signer can be a parent, relative or even a friend with a good credit score and a steady source of income.
3. Gather supporting documents. Save time on your loan application by gathering the necessary documents ahead of time. Generally, lenders will ask for your address, Social Security number, income, employment information and details about your co-signer.
4. Request quotes. Eligibility requirements, repayment terms and interest rates vary by lender, so it’s wise to shop around and request quotes from several private student loan companies. Many lenders allow you to get a quote with a soft credit check that doesn’t impact your credit score.
5. Submit your application. Once you find a loan that works for you, submit an application. If you apply with a co-signer, they will have to apply separately. After you submit your information, the lender will review your application and perform a hard credit inquiry. When they make a decision, they will notify you and send you a loan agreement to review and sign.

Methodology

We scored 12 lenders that make the most loans by volume across 15 data points in the categories of interest rates, fees, loan terms, hardship options, application process and eligibility. We chose the eight best to display based on those earning three stars or higher.

The following is the weighting assigned to each category:

• Hardship options: 30%
• Application process: 16%
• Loan terms: 14%
• Interest rates: 13%
• Eligibility: 14%
• Fees: 13%

Specific characteristics taken into consideration within each category included number of months of forbearance available, economic hardship repayment options available beyond traditional forbearance, perks like cash-back rewards upon graduation, discounts, time to default, disclosure of credit score and income requirements and other factors.

Lenders who offered interest rates below 10% scored the highest, as did those who offered more than the standard 12 months of forbearance, who made their loans available to non-U.S. citizens, who offered interest rate discounts beyond the standard 0.25% for automatic payments, who offered multiple loan terms maxing out at 15 years and who charged minimal fees.

In some cases, lenders were awarded partial points, and a maximum of 3% of the final score was left to editorial discretion based on the quality of consumer-friendly features offered.

To learn more about how Forbes Advisor rates lenders, and our editorial process, check out our Loans Rating & Review Methodology.

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