Best Private Student Loans Of October 2023 – Forbes Advisor

Best Private Student Loans Of October 2023

Summary: Best Student Loan Ratings

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 nine 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.

Tips For Comparing Private Student Loans

As you prepare to get a private student loan, don’t wait for your school to decide how much of a loan you can handle: Do the due diligence yourself. 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, consider the following factors:

• The amount you are able to borrow
• The overall cost of the loan, including its interest rate and fees
• When you must start repayment
• How long you have to repay the loan
• What help the lender offers if you have trouble affording your payments
• Your credit score; lower scores receive higher interest rates
• Available discounts, including autopay discounts
• If you can add a co-signer (and if you can qualify for a co-signer release later)

The Complete Guide to Private Student Loans

How Do Student Loans Work?

Students and their parents can borrow either private or federal student loans to pay for higher education. These loans can be used to pay for many school-related expenses, including:

• Tuition
• Room and board
• Books and school supplies
• Transportation costs
• Technology equipment such as a computer or related software
• Food, utilities and other common living expenses

Your exact repayment terms will vary based on your lender, but most student loans don’t enter repayment until after the student has left school. You can usually select a repayment term between five and 20 years, though longer repayment periods usually come with higher interest rates.

Private vs. Federal 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

Related: Federal Vs. Private Student Loans

How To Get the Best Student Loan Rates In 2023

Federal Student Loans

You don’t need to do anything to nab the best rates on federal loans—all federal student loans come with fixed, standardized interest rates. Your rate isn’t based on your creditworthiness or financial background. Instead, everyone who qualifies for a federal student loan receives the same interest rate.

This makes federal student loans a good choice for many borrowers, but those with excellent credit and a high income (or a co-signer with those things) may qualify for lower rates on the private loan market.

The federal student loan rates for the 2022-23 school year are:

• Direct Subsidized and Unsubsidized Loans (undergrad students): 4.99%
• Direct Unsubsidized Loans (graduate students): 6.54%
• Direct PLUS Loans (parents or graduate students): 7.54%

Interest rates on these loans are updated each year in July. After a dip during Covid-19, rates have trended upward in the last two years.

Private Student Loans

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.

1. Clean Up Your Credit

Your credit plays a big role in the interest rate you pay. The better your credit, the lower the rate you can qualify for. Check both your credit report and credit score to see where you stand. If your credit is poor or average, take steps to improve your credit before you submit an application.

2. Consider a Co-signer

If you aren’t able to improve your credit enough to qualify for desirable rates, consider asking a friend or relative to be a co-signer on your application. A co-signer is someone with strong credit who agrees to add their name to your loan. If you can’t make your payments as agreed, the co-signer is responsible for paying off your debt.

3. Compare Lenders

Each lender sets interest rates based on its own proprietary underwriting requirements. This means that some will offer you a better deal than others. That’s why it’s so important to shop around and compare private lenders to find the best rates you can qualify for.

4. Choose Between Fixed and Variable Rates

When you’ve chosen your desired lenders, you can submit applications and wait for approvals. Many private lenders allow you to choose between fixed- and variable-rate student loans when finalizing your deal.

Generally, variable rates start lower than fixed rates—but variable rates can change over the life of the debt. That means you could be stuck paying a higher rate later on, and your monthly payments may change as well. Fixed rates may start off higher, but they’re locked in for the life of the loan. That means they will never change and your monthly payment will remain constant.

5. Select the Right Repayment Terms

Your repayment timeline can also affect the interest rates you’re offered by private lenders. Many student lenders offer terms ranging from five to 15 years, though some will allow repayment for even longer.

Typically, shorter repayment terms come with lower interest rates. Plus, you’ll pay less interest simply because you’re in debt for a shorter period of time. However, your monthly payments will be larger with a shorter term.

Use a student loan payment calculator to play with different scenarios and estimate how much you’ll actually pay for a loan.

Can I Get a Student Loan Without a Co-signer?

It’s possible to get a student loan without a co-signer, but the difficulty of doing so depends on your situation.

Nearly every type of federal student loan does not require (or allow) co-signers. Because you don’t need a high credit score to qualify for these types of loans, most students are eligible without a co-signer if they can meet a few basic requirements.

Private student loans, however, may be harder to get on your own. These types of loans require a high credit score of at least 670 to qualify for the lowest rates. If you can’t qualify individually, you may need to add a co-signer to your application. However, some lenders offer a co-signer release after you meet certain requirements, so look for that feature as you compare your options.

Some private lenders specialize in student loans without a co-signer; instead of reviewing your credit, they may consider things like your performance in school and field of study instead. While it may be easier to qualify for these loans, they typically come with higher interest rates.

Related: How To Get a Student Loan Without a Co-Signer

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 Get a Private Student Loan With Bad Credit

It’s possible to get private student loans with bad credit, but you’ll pay more for the privilege.

Some lenders offer student loans specifically for borrowers with bad credit or no credit. These loans have more relaxed eligibility requirements, and some don’t require a credit check at all. Instead, lenders may review alternative factors such as your field of study, grade point average or estimated future earnings to determine your eligibility. However, these loans come with significantly higher interest rates than traditional private student loans.

If you have bad credit, consider federal student loans first. Most of these loan types don’t check your credit, and the interest rates are standardized. That means everyone who qualifies for a federal loan receives the same interest rate, regardless of their financial history.

If you don’t qualify for federal student loans or have maxed out the federal aid available to you, consider taking steps to improve your credit before applying for a private student loan. If that’s not an option, you might add a co-signer to your loan application, which can help you qualify for better interest rates.

How To Apply for a Student Loan for College

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.

Recap: Best Private Student Loans Of October 2023

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