Private student loan
An education loan from a bank, credit union or other private lender, priced on credit and lacking most federal loan protections.
What it means
Private student loans fill gaps when federal aid and savings do not cover the full cost of school. Approval and rates depend on the borrower’s credit, and because most students have thin credit histories, many loans require a cosigner. Rates can be fixed or variable.
These loans generally lack federal benefits such as income-driven repayment and federal forgiveness programs. Some lenders offer limited forbearance, hardship options or cosigner release, but terms vary widely. Refinancing federal loans into a private loan permanently gives up federal protections.
Formula
M = P × r(1 + r)^n / ((1 + r)^n − 1)
- M = monthly payment (principal and interest)
- P = amount borrowed
- r = annual interest rate ÷ 12
- n = total number of monthly payments
Example
For example, $30,000 at an illustrative 8% fixed rate over 10 years costs about $363.98 a month and about $13,678 in total interest, compared with about $9,967 at 6%.
How it’s used
- Covering costs above federal loan limits
- Refinancing existing student debt at a lower rate
- Borrowers with strong credit or a creditworthy cosigner
Strengths and weaknesses
Strengths
- Can cover costs beyond federal limits
- Strong credit can earn competitive rates
- Choice of fixed or variable rates and terms
Weaknesses
- Few borrower protections compared with federal loans
- Cosigner often required and fully liable
- Variable rates can rise over time
See it in the data: College tuition relative to inflation →
Related terms
Educational information only, not financial, tax or legal advice. Rules, limits and rates change; check the IRS, your lender or plan, or a qualified professional before acting.