The essentials
What is a private student loan?
Private loans are not part of the federal Direct Loan program. Approval, rate and fees depend heavily on credit and often a cosigner. Variable rates can change over time.
Compare federal options first. Review in-school payment requirements, grace period, cosigner release, hardship programs, death or disability provisions and the method used to set a variable rate. Refinancing federal loans into private debt permanently gives up federal protections.
How it works
- 01
The school certifies eligible cost and other aid.
- 02
The lender underwrites the borrower and cosigner.
- 03
Disbursement commonly goes through the school.
- 04
Repayment follows the note, with limited contractual relief options.
When it can—and cannot—make sense
Potentially useful when
- Federal aid and savings leave a necessary gap.
- The program has credible outcomes.
- Terms are compared across lenders.
- Borrower and cosigner understand joint liability.
Pause when
- Federal Direct eligibility is unused.
- The rate is variable but payment shock is unaffordable.
- Cosigner release is vague or discretionary.
- The school or lender pressures immediate acceptance.
Costs and risks to count
- Fixed or variable interest
- Origination or late fees where charged
- Interest accruing during school
- Cosigner and refinancing consequences
Private education loans receive special Regulation Z disclosures and timing protections. Bankruptcy treatment and school certification rules can differ from ordinary consumer loans.
Questions to ask before signing
Is the rate fixed or variable?
What is the highest plausible payment?
How does cosigner release work?
What hardship options are contractual?
What happens after death or disability?
Location matters
Check the rules in your state
States may license lenders and servicers, regulate collections, provide ombudsman help and set limitation periods. State education loan authorities may offer resident programs.