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If you’ve used all savings available to pay for college, all available federal student loans, and all student aid and still find that you’re short on cash, a private student loan could be a good option.
Federal student loans should always come before private student loans — federal student loans have the lowest interest rates and also come with a level of protection that private lenders don’t offer.
Take the federal student loan forbearance during the coronavirus pandemic, for example. While private lenders may have offered their own help for people experiencing hardships, private student loan borrowers didn’t get that widespread benefit, nor have interest rates set to 0% to stop interest accrual.
The best student loans available are federal student loans. But, if you need to turn to a private lender, here are a few of the best to start your search.
SoFi’s private student loans are best for graduate students. SoFi is one of the few lenders that offers lower interest rates for graduate school loans than undergraduate loans, with graduate loans starting 0.1% lower than undergraduate loans.
While SoFi’s interest rates are competitive with others on the list, what makes SoFi unique are its other features. This lender offers some good protections for student loan borrowers, like career services and unemployment protection. Additionally, SoFi’s student loans have no fees, including no late fees (though it’s worth noting that interest will still accrue).
However, SoFi’s minimum loan amount is $5,000 — if you need a small student loan, it might be worth turning to a lender that makes smaller loans.
Ascent private student loans are a flexible option for almost any student loan borrowers. Interest rates are competitive, and terms range from five to 15 years.
Like all other student loan lenders on this list, cosigners are allowed, and encouraged. But, a relatively unique feature is Ascent’s cosigner release. Make 24 consecutive on-time payments, and Ascent can release a cosigner from your student loan.
Ascent isn’t a great option if you want to repay your student loans while you’re still in school, as this lender doesn’t offer a repayment plan with full payments while borrowers are still enrolled. But there’s no prepayment penalty on loans if you want to make partial payments in school. It’s also worth noting that Ascent limits borrowers’ total loans to $200,000, including any other federal or private student loans outside of Ascent.
Earnest’s private student loans offer low starting interest rates and very flexible repayment terms. Earnest has four options for repayment, including a nine-month deferral after school. Earnest doesn’t charge any fees, including prepayment or origination fees on private student loans, which makes it a strong option.
However, some of Earnest’s flexible features can be too flexible. The ability to delay loans for nine months may not be as great as it sounds, since interest still accrues during this period, growing your loan’s balance.
Earnest also advertises the ability to skip a payment once per year. But that doesn’t meant that you’re off the hook for that payment, since interest will still add up and your payoff will be delayed. Your payments could be higher if you take full advantage of these features, and they could increase your total payoff time and loan amount.
But, if used the right way, Earnest’s private student loans could still beat the competition with such low starting interest rates.
College Ave ties with Earnest for the lowest starting interest rates on private student loans, since undergraduate fixed-rate loans start with an interest rate of 3.34%. Interest rates for grad school students are also competitive with SoFi’s lower interest rates for this group.
It’s a good choice for both graduate and undergraduate students, and offers four options for repayment. It allows cosigners for loans, and offers parent loans in addition to undergraduate and graduate loans, starting at the same interest rate as the undergraduate interest rate.
Rates in this post are current as of 05/03/2021.
- Citizens Bank private student loans. Citizens Bank offers good rates, but there are fewer repayment options through this lender, as Citizens doesn’t give the option to pay during school.
- Commonbond private student loans. Commondbond offers good rates, but you’re required to have a cosigner on most student loans.
- Credible private student loans. Credible doesn’t directly make student loans — rather, this is a marketplace that makes loans through the lenders listed above and more. Credible works with Ascent, Citizens Bank, College Ave, and Sallie Mae, for example.
- Discover private student loans. Some of Discover’s rates are competitive, but graduate students, in particular, can find better loan rates elsewhere.
- Sallie Mae private student loans. Sallie Mae’s undergraduate fixed interest rates start at 4.25%, which is just slightly higher than SoFi’s starting point. This lender’s graduate school loans are significantly higher than other lenders’ graduate program loan options, starting at 4.75%.
We’ve only selected private student loan lenders with no public controversies in the last three years. We’ve also compared each institution’s Better Business Bureau score.
The BBB measures businesses’ trustworthiness based on factors like their responsiveness to consumer complaints, truthfulness in advertising, and clarity about business practices. Here is each company’s score:
Of our top picks, only Ascent is not currently rated an A or higher by the BBB — the company isn’t rated by the BBB at all. That said, this doesn’t necessarily reflect Ascent’s trustworthiness, and you should ask others about their experience with the company before deciding against borrowing from Ascent.
How did we pick the best private student loans?
Personal Finance Insider’s goal is to help smart people make the best possible decisions with their money. To do that, we combed through many student loans, comparing interest rates, terms, and fine print so you don’t have to. We looked for several factors in determining the best student loans, including:
- Interest rates: The lower the interest rate the better, and we prioritized lenders with the lowest interest rates for both grad school and undergrad students.
- Nationwide availability: We searched for student loans available in all or most US states.
- Flexibility of repayment plans: There are four main options for repayment offered by most lenders: defer payments until after school; interest-only payments in school; small, fixed payments in school; and full monthly in-school payments. We looked for lenders with the most ways to pay.
- No or few fees: We prioritized lenders that didn’t charge fees, like origination fees or prepayment penalties.
- Cosigner eligibility: All of the student loans we considered had the option to apply with a cosigner, to help with chances for approval and lower interest rates. Several our top picks also have the ability to release a cosigner —Ascent and College Ave both offer this after 24 months of consecutive, on-time payments.
What’s the difference between federal and private student loans?
Federal student loans have a number of protections that private student loans don’t, and often come with lower interest rates, too.
While the lowest fixed interest rate on our list of private student lenders is 3.14% for an undergraduate degree, the interest rate for the same loan would be 2.75% through a federal lender.
Additionally, federal student loans have more protections. The widespread forbearance and 0% interest rates during the coronavirus pandemic are some examples. Similarly, income-based repayment plans are only available for federal student loans, and help to lower payments to a percentage of a person’s income. That’s a protection not available to private student loan borrowers that could make a big difference.
It’s a good idea to use all of your available federal loan options first to take advantage of these protections.
Should I pay student loans while I’m still in school?
This depends on your financial situation. Interest will still accrue while you’re in school, so it may be beneficial to make your interest payments each month or set aside a certain amount of money for monthly payments.
Paying either the principal of your student loans or the interest could be a good idea, because when your loan goes into repayment, any unpaid interest will capitalize. This means it will become part of the principal balance of your loan, which ups the loan. Interest is then determined using this new, higher loan balance.
Does interest accrue during the grace period?
Yes, interest will accrue during the grace period, similar to how it does while you are in school. Private lenders may have suspended this practice during the pandemic, but they are under no obligation to do so.
Can you get a student loan without a cosigner?
For most younger students, it’s unlikely you’ll be approved without a cosigner. Only 8.8% of people who applied for private student loans without a cosigner were approved in 2020, according to LendEDU data. And the average credit score for approval was 748.
It is possible, but mainly for students that have an established credit history and an income. Once you have some credit established, however, you may be able to remove your cosigner by refinancing. Some lenders also allow borrowers to remove cosigners after several years of consecutive payments.
Variable interest rate student loan vs. fixed-rate student loans — which is best?
Interest rates are at record lows in 2021, dropping across the board for both fixed- and variable-rate loans. And variable interest rates are exactly what they sound like — these loans have interest rates that change based on interest rate indexes, like the LIBOR or prime rate, plus a margin. When that index rate increases, the amount of interest you owe increases, along with your payment.
On variable-rate loans, interest rates and payments change over time. So, it’s important to remember that what goes up must come down, and vice versa. There’s a chance that interest rates will increase before a long loan (like a student loan) is paid off, and your interest rate and payment may not always be as low as it is now.
Liz Knueven is a personal finance reporter at Insider. Previously, she covered financial and automotive topics freelancing for brands like LendingTree and Credit Karma. She now covers money topics ranging from student loans to retirement.
Ryan Wangman is a reviews fellow at Personal Finance Insider reporting on mortgages, refinancing, bank accounts, and bank reviews. In his past experience writing about personal finance, he has written about credit scores, financial literacy, and homeownership.
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