Best private student loan lenders
Before you apply for a private student loan with the first lender you come across, it helps to know which lenders offer the best tools, rates and terms. Here are some of the best student loan companies to consider based on their loan terms, fees and flexible repayment options:
SoFi makes it easy to apply for private student loans or refinance federal student loans to get a lower monthly payment or better rate. This company has refinanced $18 billion in student loans already, and 98 percent of their customers would recommend them to a friend, according to a recent company survey. We like SoFi because you can apply online, there are no hidden fees and interest rates for refinancing can be as low as 4.03 percent on a five-year loan. You can also select your preferred repayment term to get a monthly payment that works with your budget and lifestyle.
Another company offering private student loans and loan refinancing is Earnest. This company lets you get prequalified for a new student loan without a hard inquiry on your credit report, and variable interest rates start as low as 2.49 percent for refinancing and 3.99 percent for new loans. You can customize your repayment plan to achieve a monthly payment you can afford. Loans from Earnest come with no origination fees, prepayment fees or hidden fees.
Discover offers more than just rewards credit cards and personal loans; they also offer private student loans to undergraduate, graduate and professional students. Private loans are available with variable rates starting at 2.80% APR and fixed rates starting at 4.74% APR. Discover's lowest rates shown are for the undergraduate loan and include an interest-only repayment discount and a 0.25% interest rate reduction while enrolled in automatic payments. Discover also offers rewards for good grades. In addition, Discover offers private student loans for law and medical students, as well as consolidation loans for all types of borrowers.
Disclosure: Lowest rates shown are for undergraduate loans and include an interest-only repayment discount and a 0.25% interest rate reduction while enrolled in automatic payments. The interest rate ranges represent the lowest interest rate offered on the Discover undergraduate loan and highest interest rates offered on Discover student loans, including Undergraduate, Graduate, Health Professions, Law and MBA Loans. The fixed interest rate is set at the time of application and does not change during the life of the loan. The variable interest rate is calculated based on the 3-Month LIBOR index plus the applicable Margin percentage. The margin is based on your credit evaluation at the time of application and does not change. For variable interest rate loans, the 3-Month LIBOR is 2.00% as of January 1, 2020. Discover Student Loans will adjust the rate quarterly on each January 1, April 1, July 1 and October 1 (the "interest rate change date"), based on the 3-Month LIBOR Index, published in the Money Rates section of the Wall Street Journal 15 days prior to the interest rate change date, rounded up to the nearest one-eighth of one percent (0.125% or 0.00125). This may cause the monthly payments to increase, the number of payments to increase or both. Please visit https://www.discover.com/student-loans/interest-rates.html for more information about interest rates.
Federal student loans vs. private student loans
The first detail to understand about student loans is that there are two main kinds — federal student loans and private student loans. Federal student loans are overseen and guaranteed by the federal government whereas private student loans are offered on the open market by a wide range of student lenders and banks.
Types of federal student loans
When it comes to federal student loans, there are different options available with varying terms and requirements. The main types of federal student loans include:
- Direct Subsidized Loans: These loans are intended for undergraduate borrowers who exhibit “financial need.” The federal government pays interest on Direct Subsidized Loans while the student is in school at least half-time, for the first six months after you leave school (the so-called “grace period’), or during a period of deferment (or postponement of loan payments).
- Direct Unsubsidized Loans: These loans are made to undergraduate, graduate and professional students regardless of need. Because they’re unsubsidized, they begin accruing interest right away.
- Direct PLUS Loans: These loans are made to graduate students, professional students and parents of undergraduate students to cover higher education expenses when other loans have been exhausted. Eligibility is not based on financial need, but to qualify you will need to have good credit or a cosigner.
- Direct Consolidation Loans: This federal loan allows you to consolidate all your federal student loans into one new loan with a new interest rate based on the weighted average of your existing rates. These loans won’t save you money as a result; instead, they aim to help you simplify repayment by merging several loans into one.
Benefits of federal student loans
Most experts suggest taking advantage of as much federal student aid, including federal loans, as you can before you consider private student loans. This is because federal student loans tend to come with lower interest rates and some consumer protections private student loans don’t offer.
The main benefits of federal student loans include:
- No credit check or cosigner is required for most federal student loans
- No required repayment until you leave school or drop below half-time
- May be able to qualify to have your interest subsidized when you’re in school
- Flexible repayment plans including income-driven repayment plans
- Access to student loan forgiveness programs
- Access to deferment and forbearance
Benefits of private student loans
As we mentioned already, private student loans are offered by private lenders who have their own qualification guidelines. This means you can only apply for private student loans if you can pass a credit check with “good” credit, which is typically considered any FICO score of 670 or higher. Some private student lenders also require credit scores that are much higher, and many include minimum income requirements in their general standards for eligibility.
While federal student loans are typically the best option, there are some perks that come with private student loans:
- Interest rates can be lower than federal student loans for consumers with excellent credit
- You can alter your monthly payment and repayment timeline to suit your monthly budget and goals
- You can shop around and compare rates among multiple lenders, whereas federal loans come with predetermined fixed rates that don’t change
How to get a student loan
If you need to pay for college and know taking out loans is required, you’ll start the process by filling out the Free Application for Federal Student Aid, or FAFSA form. This form gathers all your relevant personal and family financial details in one place in order to gauge your ability to qualify for federal student aid, including loans and grants.
After you fill out the FAFSA form, you’ll receive a Student Aid Report (SAR) from the federal government, which is a summary of the information you’ve submitted. This form won’t tell you how much aid you qualify for, however. You’ll receive that information from the college or career school you applied for once you’ve been accepted via a paper aid offer or award letter. This letter informs you of how much aid you’re eligible for as well as what kind.
When it comes to applying for private student loans, the process is even simpler. You can apply for private student loans online. The Bankrate student loans comparison tool enables you to shop around and compare multiple student loan offers in one place.
You can even get prequalified with multiple lenders within a few minutes with some private student loan companies. Private student loans may be more difficult to qualify for, however, since you’ll need good credit or a cosigner.