You're thinking about private student loans. Before you start comparing lenders and filling out applications, take a step back. The best time to ask important questions is before you shop around—not while you're in the middle of it. This guide walks you through what to figure out first so you can make smart choices when you do start comparing.
Start with the Real Number You Need
The first question is simple but easy to skip: How much money do you actually need to borrow?
Many families jump straight to asking how much they can borrow and then borrow that full amount. That's a challenge. Instead, start by knowing your real gap. What's your total cost of attendance? Subtract any money you're getting from grants (free money), scholarships, and federal student loans. That number—the gap left over—is what you might need to cover with a private loan.
Example: If college costs $30,000 a year and you're getting $15,000 in federal loans and $5,000 in scholarships, your gap is $10,000. Borrow $10,000, not the $20,000 a lender might approve you for. Borrowing more than you need means paying more interest over years.
Have You Maxed Out Federal Aid First?
Private loans should be your second choice, not your first. Federal student loans offer protections that private loans don't—like income-driven repayment plans and loan forgiveness options if you work in public service.
Before applying to a private lender, make sure you've filled out the FAFSA and borrowed the maximum federal loans you qualify for. Only after that should you think about private loans to cover any remaining gap.
Check Your Credit and Understand Where You Stand
Private lenders care about credit. Before you apply, pull your own credit report and know your score. You can get a free credit report once a year at annualcreditreport.com.
Look at it honestly. Do you see late payments? Collections? Errors? The higher your credit score, the better interest rate you'll get. Most private lenders want to see a score in the mid-600s or higher, though the average approved borrower has a score around 750.
If your credit isn't great, that's not necessarily a dealbreaker—but you might need a cosigner. A cosigner is someone (often a parent) with better credit who agrees to pay back the loan if you can't. About 80% of undergraduate borrowers apply with cosigners because most young people don't have the credit history to qualify alone.
Understand the Eligibility Rules
Before you apply, check that you and your school meet the lender's basic requirements. Most private lenders ask:
- Are you a U.S. citizen or permanent resident?
- Are you enrolled at least half-time in a school they recognize?
- Does your school participate in their loan program?
These aren't high bars, but it's worth confirming you clear them before you spend time on applications.
Think About Fixed vs. Variable Interest Rates
Here's a choice that matters for years: Do you want a fixed or variable rate?
Fixed rate: The interest rate stays the same for the life of the loan. Your payment never changes. This is predictable and easier to budget for. If you plan to repay over 10 years or more, fixed is usually the safer pick.
Variable rate: The interest rate goes up and down based on market conditions. Your payment can increase (or sometimes decrease). Variable rates start lower than fixed rates, which sounds tempting—but if rates rise, so do your payments. Variable rates are less risky if you're paying off the loan fast (under 5 years).
Ask yourself: How long do you expect to be paying this loan? How much can your budget handle if payments go up? That answer tells you which type fits your life.
Know What Repayment Options Each Lender Offers
Different lenders offer different repayment choices. The big ones are:
- Immediate repayment: You start paying interest and principal right away. This costs the most over time but shows discipline.
- Interest-only payments: While you're still in school, you pay just the interest. Principal payments start after graduation. This saves money compared to immediate repayment.
- Full deferment: You pay nothing while enrolled. Interest still accrues (gets added to what you owe), but many students choose this to focus on school first.
Before you start comparing lenders, think about which option matches your family's finances. Can you afford payments while in school? Or do you need to defer?
Plan for Cosigner Release (If You Have One)
If you're borrowing with a cosigner, you'll eventually want to release them from the loan. This frees them from responsibility, and it helps you build your own credit history.
The timeline varies by lender, but most require 24-48 consecutive on-time payments. That's roughly 2-4 years. You'll also need to show a good credit score (usually 670+) and proof of income that you can handle the loan on your own. Some lenders are faster than others—typically 12 months at the fastest—so when you're comparing, ask each lender about their cosigner release program.
Ask About Fees, Discounts, and Loan Features
When you start comparing, pay attention to these details:
- Autopay discounts: Many lenders cut your interest rate by 0.25% if you set up automatic monthly payments from your bank account.
- Prepayment penalties: Good news—federal law bans prepayment penalties on student loans, so you can pay extra or pay off early without penalty.
- Origination fees or other charges: Some lenders charge a fee upfront when they process your loan. Know what you're paying.
- Death and disability coverage: This varies a lot. Federal loans are forgiven if you die or become totally and permanently disabled. Private lenders aren't required to do this, so ask what protection they offer and if there's a cost.
Create a Checklist Before You Shop
Once you've worked through these questions, you're ready to compare. Here's your checklist to take when you start looking at lenders:
- I know my real borrowing gap (not the max I could get)
- I've borrowed all available federal loans first
- I've pulled my credit report and know my score
- I've decided whether I need a cosigner
- I understand the eligibility rules and meet them
- I've chosen between fixed and variable rates
- I know which repayment option works for my budget
- I understand the cosigner release timeline
- I know what fees and discounts to ask about
Challenges to Watch
The biggest challenge most families hit is borrowing too much too fast. Lenders make it easy to apply for large amounts. But just because you can borrow $20,000 doesn't mean you should. Each extra dollar borrowed means years of extra payments.
Another common challenge: skipping the federal loans step. Many families don't realize federal loans come with protections—flexible repayment plans, forgiveness programs for public service—that private loans don't offer. Using federal loans first leaves private loans as a safety net, not your main source.
The Bottom Line
The questions you ask before shopping matter more than the ones you ask while shopping. Know your gap, check your credit, understand your options, and get clear on what rate type and repayment plan fit your life. Then, when you start comparing lenders, you'll be making choices based on real information, not guesses.
When you're ready to compare, shop around. Research your school's cost of attendance and available aid so you know exactly what you're working with. Compare interest rates from at least three lenders, and remember to ask all your lenders the same questions so you can really compare apples to apples.
— Sravani at CollegeLens