6 Best Private Student Loans

What happens when your family has run through college savings, private scholarships, federal grants and federal direct student loans and you still need more money to pay for your kids’ college?

Parents, if they’re inclined, can borrow the entire cost of college attendance (minus other grants and aid) from Uncle Sam in the form of PLUS Loans. Graduate students can also borrow up to the full cost of attendance through PLUS loans.  (Undergraduates aren’t eligible to take out PLUS loans themselves.)

But PLUS loans don’t come cheap. New PLUS loans issued after July 1 will carry a fixed rate of 7.08%plus a stiff origination fee of 4.248%.  (That origination fee is deducted from the loan upfront, meaning you get less than you have borrowed.)

Surprisingly, private student loans can be a cheaper alternative—if your credit score is high enough. That’s because the rate for PLUS loans doesn’t depend on your score, although if there are certain adverse events in your credit history you may not be able to get a PLUS loan at all.

Here are the top six private student loans for parents and graduate students to consider. Remember, the low end of the interest rate ranges will only be available to those with good credit histories.

Students who are fresh out of high school tend to have a thin credit file, which works against them in qualifying for a private student loan. So lenders encourage parents or another trusted adult with good to great credit to cosign. Their credit histories will be used to determine the interest rate. Cosigning generally means they are on the hook for the loan if the student doesn’t pay.

(Go to the bottom of this story for a handy definition of all the terms used in the reviews.)

Best Private Student Loan Options

Ascent’s Private Student Loans

Variable APR Rates: 3.71% to 13.01%

Fixed APR Rates: 4.22% to 13.66%

Loan Terms: 5, 10 or 15 years.

Fees: No origination, disbursement or application fees. There’s also no fee for paying off your loan early.

Perks: Ascent offers 1% cash back as a “graduation reward.” There’s a list of conditions you must satisfy to qualify. Another perk is getting a 0.25% discount on the interest rate for enrolling in automatic payments. Borrowers can also enter the $1,000 Ascent scholarship sweepstakes by completing a 10-minute survey or earn up to $600 per year for referring up to six friends.

Repayment Options:

In-School: Borrowers can choose to pay the interest monthly or pay $25 monthly. Your loan will accrue interest and whether the $25 payment covers the interest depends on the size of the loan.

Deferment: You are able to suspend payments while in school up to 60 months or five years along with a six month grace period after school.  Military personnel can defer payments for up to 36 months if they are on active duty. Borrowers in an internship or residency program can request a deferment, as well.

Forbearance: For financial hardships, borrowers can suspend payments three months at a time, but throughout the loan term, you can suspend payments for up to 24 months.

Cosigner Release: Yes, after 24 months of consecutive automatic debit payments, if the primary borrower meets certain credit score requirements.

Loan types: Cosigned and Independent

Aggregate Loan Limit: $200,000

Application: Online.

Options For International Students: Yes, but with a cosigner that has U.S. citizenship or permanent residency.

Loan Forgiveness: Yes. Debt is discharged (and any cosigner is off the hook) in the event of the borrower’s death or permanent disability.

Discover’s Private Student Loans

Variable APR Rates: 3.87% to 11.87%

Fixed APR Rates: 5.24% to 12.99%

Loan Terms: 15 or 20 years.

Fees: No application fee, no origination fee and no late fees.

Perks: Discover offers borrowers or loan recipients with a 3.0 GPA or higher 1% of their loan amount as a cash reward. You could also lower your interest rate by 0.25% by enrolling in automatic payments.

Repayment Options:

Deferment: 45 months in school plus a six month grace period.

In-School: $25 fixed monthly payments or interest-only monthly payments, which come with an interest rate reduction of 0.35%.

Cosigner Release: No. Only if the borrower refinances or consolidates his or her loans, will the cosigner be released from the loan.

Loan types: Undergraduate, graduate, MBA, health professions loans, law loans, residency loans, bar exam loans and consolidation loans.

Aggregate Loan Limit: Depends on your school.

Application: Online or over the phone in 15 minutes.

Options for International Students: Yes.

Loan forgiveness: No.

CommonBond’s Private Student Loans

Variable APR Rates: 3.56% to 9.64%

Fixed APR Rates: 5.45% to 9.74%

Loan Terms: 5, 10, or 15 years.

Fees: No prepayment penalties. There was a 2% origination fee that was added to the principal but CommonBond told us it no longer has origination fees.

Perks: While you’re using your loan to fund your own education, CommonBond will also fund the education for a child in a developing part of the world for one year.

Repayment Options: While in-school, loans can be deferred and there’s a six month grace period after leaving school or graduation. The unpaid interest during deferment will be added to your principal.

In-School: According to the website, borrowers can pay the full minimum monthly payment or decide between making $25 monthly payments or interest-only payments.

Forbearance: Suspend payments for a total of up to 12 months throughout the loan term.

Cosigner Release: Yes, after two years, or 24 months of consecutive on-time payments towards the principal and interest and a credit check.

Loan types: Undergraduate, graduate, medical, dental and MBA loans.

Aggregate Loan Limit: Depends on the financial aid office at the school.

Application: Online.

Options For International Students: No.

Loan Forgiveness: Yes.

Sallie Mae’s Private Student Loans

Variable APR Rates: 3.98% to 11.35%

Fixed APR Rates: 5.24% to 11.85%

Fees: No origination fee and no penalty for paying the loan off early.

Perks: Sallie Mae gives its borrowers and cosigners free access to their FICO credit score quarterly. Students will also get four months of free homework and study support at Study Starter.

Repayment Options: While in-school, loans are deferred and there’s a six month grace period after leaving school or graduation. The unpaid interest during deferment will be added to your principal.

In-School Repayment: You have the option to pay $25 a month until the end of your grace period where you’ll pay the minimum or more, or you could pay the interest monthly.

Additional Deferment: Sallie Mae offers graduates a “graduated repayment period” where borrowers can choose to make interest-only monthly payments for one year while they find their financial footing after college.

Cosigner Release: Some loans have it.

Loan types: K-12, Undergraduate, graduate, parent loans and certification programs.

Aggregate Loan Limit: Depends on the financial aid office.

Application: Online and in 15 minutes.

Options For International Students: Yes.

Loan Forgiveness: No.

SunTrust’s Private Student Loans

Variable APR Rates: 3.626% to 10.675%

Fixed APR Rates: 4.551% to 13.750%

Loan Terms: 7, 10 or 15 years.

Fees: No application fee, no origination fee and no fees for paying off your loan early.

Perks: Graduates in undergrad and graduate schools could receive a 2% principal reduction and graduate business students are eligible for a 1% principal reduction. SunTrust offers to lower your interest rate by up to 0.75% for those who enroll in automatic payments or who make 36 consecutive, on-time monthly payments. This is not a perk, but SunTrust’s Off to College $500 scholarship could go towards textbooks or your accruing interest.

Repayment Options:

Deferment: In-school suspension of payments.

Cosigner Release: Yes, after 36 or 48 consecutive and on-time payments towards the principal and interest.

Loan types: Undergraduate and graduate.

Aggregate Loan Limit: $150,000. Annually, up to $65,000 for undergraduate loans and up to $95,000 for graduate loans.

Application: Online or over the phone in 15 minutes

Options For International Students: Yes.

Loan Forgiveness: No.

Wells Fargo’s Private Student Loans

Variable APR Rates: 4.80% to 12.23%

Fixed APR Rates: 4.99% to 12.68%

Fees: There is a late payment fee, but there is no penalty for paying loans off early, no origination fee and no late fees.

Perks: Wells Fargo customers who have a consumer checking account or previously received a Wells Fargo student loan are eligible for an interest rate reduction by 0.25%. The “relationship interest rate discount” is 0.50% for customers who have a Portfolio by Wells Fargo.

Repayment Options: There’s a six month grace period after leaving school or graduation. While in-school, loans are in forbearance for up to 48 months, or four years. As explained below, forbearance means you don’t have to make a payment, but you are still accruing interest.

Additional Forbearance: For borrowers who are returning to school, active in the military or under a financial hardship like unemployment or a national disaster. Public service volunteers are eligible for forbearance up to three years.

Cosigner Release: Yes, after 24 or 48 consecutive and on-time payments.

Loan types: Undergraduate and graduate.

Aggregate Loan Limit: Depends on the loan type.

Application: Online or over the phone in 15 minutes.

Options For International Students: Yes.

Loan Forgiveness: Yes.

Choosing a Private Student Loan

Some private student loan lenders don’t have caps on the amount of money you can borrow from them, but your school may. As you evaluate what loan suits you the best, find out how the loan will be disbursed and what costs it will cover.

Don’t wait for your school to decide how much of a loan you can handle. Do the due diligence yourself. Experts in college financial planning recommend borrowing no more than what you’ll most likely earn in your first job out of college. This is intended to protect you from having unmanageable monthly payments.

When picking a private student loan, there are a few things you should review like the interest rate, its terms for cosigners, any discounts and payment options. Below are some terms for you to become familiar with.

Interest Rates

Private student loans usually have variable and fixed interest rates that are based on the borrower’s creditworthiness. If you have great credit, then you’ll be eligible for a lower interest rate. But if you have bad credit, then prepare for a high interest rate.

The variable rate, which fluctuates, works in conjunction with a fixed-rate the lender sets that is based on your credit history. The fluctuating percentage rate, also known as an adjustable rate, rises and falls according to the index they follow. The lender may use the London interbank offered rate (LIBOR) or the prime rate as its benchmark.

A prime rate is the interest rate banks reserve for their customers who are the most creditworthy. It follows the Federal Reserve’s federal funds rate, which as of July 30 stood at  2.39%.. The LIBOR is managed by the Intercontinental Benchmark Administration (IBA).

For the 2019-to-2020 school year, the fixed interest rate for undergraduate federal student loans sits at 4.53% (a slight drop from last year’s 5.05%). Graduate students’ first layer of loans is at  6.08% (down from 6.6% the year before), while Grad Plus and Parent Plus loans are at  7.08% (down from 7.6%). Financial institutions like banks and credit unions have low rates that try to match or beat that of the federal loans, but it’s only a competitive match for borrowers who are a low credit risk. For example, Discover has fixed rates as low as 4.24% and as high as 13.49%.

Cosigner Release

Most traditional college students don’t have a long credit history, so they turn to a relative to cosign for their loan. A cosigner is an individual who is willing to use their good or excellent credit history to help someone get a loan that he or she does not qualify for alone. This is no small gesture. If the borrower can’t make payments on the loan, the lender seeks payment from the cosigner. If the borrower defaults on the loan, it affects the cosigner’s credit.

Some private loans offer to release the cosigner from the loan after the borrower makes a certain number of payments or meets other requirements.

Autopay Discounts

One of the quickest and easiest ways to reduce your interest rate is to sign up for automatic payments or withdrawals. Autopay can reduce your interest rate by 0.25%.

Payment Options

You may not be thinking of this feature while applying for a student loan, but whether you have multiple or limited options could influence what you do after leaving school or graduating.

Student loans, whether federal or private, offer you the ability to pay the interest on the loans while you’re in school.

Like federal student loans, many private student loans offer a six-month grace period after graduation before you have to start to pay the lender back. Within that six-month grace period, you’ll need to secure a steady income that could be put towards what you owe. Students (as opposed to parents) need to be wary of loans that expect repayment to start within 30 to 60 days of receiving the loan.

Deferment

Federal student loans allow you to delay your loan payments while you are attending school. Some private student loans offer this, as well. Deferment for private student loans only applies to payments. Interest will still accrue on these loans. (With federal student loans, interest also accrues while you’re in school, except for subsidized Stafford undergraduate loans.)

There are lenders that offer other types of deferment. For example, some allow you to delay your payments because of financial hardship like unemployment or military deployment. Be mindful of the amount of interest you’ll owe and any fees the lender may charge for this. You’ll want to review this before applying for a loan.

Forbearance

Like deferment, you can suspend or reduce your payments for a certain period of time.With private student loans, lenders will use forbearance and deferment interchangeably. Regardless of whether the suspended payments are referred to as deferment or forbearance, the unpaid interest gets added to your principal, causing your monthly payments to increase and extending your loan term.

For federal student loans, there is a difference between forbearance and deferment. With federal loans, a deferment means you could suspend payments and you may not have to pay the interest on the deferred loans. Forbearance is similar except you’ll have to pay the accruing interest on all the loans in forbearance.

Fees

Just like you should read the fine print on a credit card, you should know about and understand what fees you might incur for private student loans. Some lenders will add your fees on to the principal of the loan. Find out answers to the following questions:

• Is there a loan application fee?
• Is there a loan origination fee?
• What type of fees could I incur for making a late payment?
• How do you pay the fees?

Perks

Private student loan lenders realize they are not the ideal option for a young college student or the student’s cosigners. As a result, they line their loans up with one or two perks to help you out in the long run. Banks have perks such as reductions in the principal balance or accrued interest for students who earn a 3.0 grade point average and above. Consider these perks as you decide on the best private student loan option for your specific circumstances.