Private student loans are school loans offered by private lenders instead of the federal government. When you’re shopping around for a loan, however, you may notice that there are different types of student loans from these private lenders, including degree-specific loans, bad-credit loans and international student loans.

What is a private student loan?

A private student loan is a student loan offered by a lender other than the federal government. Private lenders include banks, credit unions, state agencies, universities or other lending institutions. These loans use your credit score, annual income and more to deliver customized interest rates and terms, much like a personal loan or credit card.

With private student loans, you’ll often have the choice between variable and fixed interest rates, and you may be able to choose among a variety of repayment terms — usually between five and 20 years.

Private student loans vs. federal student loans

Private student loans and federal student loans are both designed for the same purpose: to help people pay for school. However, while private loans originate from banks, federal student loans come from the U.S. Department of Education.

Most experts — and even private student loan companies themselves — recommend using as much of your federal loan allotment as possible before turning to private loans. Unlike private loans, which rely on your credit score to set rates, federal student loans give all borrowers the same interest rate. This gives younger borrowers the chance to access loans without a long credit history or a co-signer.

There are a few other perks to federal loans. Depending on your financial need, you can qualify for subsidized federal loans, which don’t accrue interest while you’re in school. Federal loans also have many options for deferring your payments and offer income-driven repayment plans, which can make them more affordable for people who have low incomes.

While private loans don’t offer those perks, they do have one advantage over federal loans: Private lenders are often willing to extend much larger loans to borrowers. While federal loans max out at $5,500 to $12,500 per year for undergraduate borrowers, private loans often cover up to the full cost of attendance. Borrowers who have excellent credit may also find lower rates with private lenders.

Types of private student loans

There are a handful of different types of private student loans from which you can choose. Understanding student loans can help you get a better idea of which option is best for you.

Degree-specific loans

On a basic level, private lenders may offer undergraduate and graduate student loans. However, some may also go beyond that with degree-specific loans for medical, business, dental and law programs. You may even be able to get a loan to study for the bar exam or for your time at a community college. Degree-specific loans may have perks uniquely tailored to the needs of that program — for instance, a medical school loan may have longer grace periods or automatic deferment while you complete a residency.

International student loans

International students may have a hard time getting approved for credit when they need it. They are also not eligible for federal student loans, which leaves private loans as their only option. Some lenders specialize in offering student loans to international students who may not meet the standard requirements for traditional private loans, though international students may need to have a co-signer who is a U.S. citizen to be approved.

Bad-credit loans

If you need student loans and your credit history is poor or nonexistent, your best bet is federal student loans, because they typically don’t require a credit check.

However, if you need private student loans for bad credit, there are lenders that have less-stringent credit requirements for college students who haven’t had the chance to build credit or students who need the funding but don’t have a stellar credit history. Just keep in mind that these loans typically charge higher interest rates than standard private loans.

If possible, look for a lender that allows co-signers, which may help you secure a lower rate.

State-specific loan programs

Many states offer private student loans through a specific state agency. A few examples include the Rhode Island Student Loan Authority, the Iowa Student Loan Education Lending and the Bank of North Dakota.

These private student loans are typically reserved for students who are attending a college within the state’s borders but possibly also for residents who are studying in another state. Eligibility requirements vary from state to state.

Income share agreements

Income share agreements function differently than traditional student loans. Instead of making a fixed monthly payment based on your student loan balance and an interest rate, you’ll pay a percentage of your income over a fixed number of years.

Before you apply for an income share agreement, figure out what the income percentage and repayment term will be. These agreements typically also have a salary floor and a payment cap to ensure that both parties are treated fairly.

Which private student loan is best for me?

The best private student loan for you depends on your priorities — whether that’s the lowest interest rate possible, flexible repayment terms or unique perks that will help you with repayment. When considering private student loans, compare all of the loan features, including repayment terms, fees and interest rates, to get a sense of what your repayment will look like after graduation. You can use a student loan calculator to estimate the cost of the loans you’re offered.

If you’re comparing income share agreements with more traditional private loans, you can also use an online calculator to get an idea of what you’ll end up paying and how that compares to what you’d pay in interest on a different type of loan.

How do I apply for a private student loan?

To get a private student loan, you’ll apply directly with the lender of your choice to find out what terms you qualify for — either online, over the phone or in person. There are also some loan aggregators like Credible that will run your information through several lenders at once.

Most private lenders allow you to get prequalified with just a soft credit check before you submit a full application. This process doesn’t impact your credit score, but it can give you an initial quote based on the information the lender can see. Comparing private loan interest rates from multiple lenders can make it easier to choose the best fit for you.

Once you’ve submitted your application, the lender will provide you with either an approval or a denial. If you’ve been approved, the lender will share the terms of the loan with you. If you accept the offer, you’ll sign the paperwork, and the lender will disburse the loan funds to your school.

If you’ve been denied, you may be able to apply again with a creditworthy co-signer, who can improve your odds of getting approved. Even if you can qualify on your own, a co-signer could help you score a lower interest rate.