Taking out private student loans to pay for college is one of the most expensive ways to borrow for school, yet many college students make the mistake of turning to private loans first before pursuing other financing options.
Nearly half (47%) of undergraduates who took out private student loans during the 2011-12 school year didn’t use the maximum available in federal loans, according to a 2016 report by The Institute for College Access and Success (TICAS).
The danger with private loans is in how costly they can be — interest rates on private student loans were as high as 14.24% in September 2017 vs. 4.45% for federal student loans — and how few flexible repayment options they carry for borrowers who struggle to pay them back.
It’s generally best to find ways to fund your education for free with grants and scholarships, turn to your savings and then exhaust your federal student aid. Federal student loans tend to offer lower interest rates and more lenient repayment plans than private student loans, which is why federal aid is often a good first choice.
However, federal loans can only go so far, especially if you are pursuing a postgraduate degree that requires many more years of schooling. Once you’ve tapped out all your access to federal aid and you still need money to cover educational costs, a private student loan could help you fill the gap.
While federal student loans offer a fairly uniform application process and loan terms, private student loan terms can vary widely from one lender to another. If you’re thinking about paying for school with a private student loan, it’s important to compare lenders’ offerings and find the one that’s best for you.
How we ranked the best private student loans
There’s a lot to compare when you’re considering taking out a student loan from a private lender. Your annual percentage rate (APR), fees and loan term could impact how much you pay in interest over the lifetime of the loan. But other features, such as a straightforward application process and the option to apply for cosigner release, can also be important to borrowers.
We started the search for the best private student loan companies by identifying the 10 largest national private student loan lenders. Each lender’s undergraduate student loan got graded on seven important factors:
Private lenders offering loans with varying interest rates depending on the applicant’s creditworthiness. However, they do advertise an interest-rate range that you can use to compare one lender with another. Each lender was assigned grades based on its lowest and highest APRs compared with the average lowest and highest APRs for all 10 lenders. Each lender received four scores, as they all offer variable-rate and fixed-rate loans, and the lenders with below-average APRs received top marks.
Lenders may charge a fee to submit an application or an origination fee that’s based on your loan balance. Only one of the top 10 lenders charges an origination fee, and it didn’t make the top five list.
All the lenders offer an online application, but the clarity and ease of use can vary. The lenders with a simple and easy-to-understand process got the best grades.
Many private student lenders, including all 10 of the lenders we compared, offer a 0.25% interest rate discount if you enroll in autopay from your bank account. A few lenders earned extra points for offering a 0.50% interest rate discount with autopay, or an additional interest rate discount if you have an eligible account with the lender when you take out a student loan.
Most of the private student loans we compared offered several repayment terms with a maximum of 15 years. Lenders that cap their loan’s term below 15 years didn’t score as well. A long repayment term could increase the total amount of interest you pay, but it will also lower your monthly payments and there’s no penalty for prepaying student loans if you find you can afford more.
Most students have a creditworthy cosigner, who can help you qualify for a loan or lower your interest rate. Some private student loan lenders let you apply to release your cosigner after you make consecutive, on-time full principal and interest payments, and pass a credit check. Twelve payments set the bar for a top score as that’s the shortest option available among the lenders we compared.
You may be able to choose from different repayment plans, such as making interest-only payments while you’re in school or fully deferring payments until your post-school grace period ends. Lenders that offer full interest and principal deferment got top marks.
A few lenders earned extra credit because they offer something extra, such as a principal rate reduction or cash back when you graduate.
After assigning the lenders a score for each factor, we compared their average scores and ranked them from highest to lowest. Here are the resulting top five student loan lenders:
Our top picks for private student loan companies
SunTrust Custom Choice Loan
Wells Fargo Collegiate Loan
Sallie Mae Smart Option Student Loan
LendKey Private Student Loan
Citizens Bank Student Loan
School-certified cost of attendance
Varies by lender
Interest rate discounts
0.25% with autopay, or 0.50% if you autopay from a SunTrust Bank account.
0.25% with autopay. Additional 0.25% to 0.50% interest rate deduction if you have an eligible Wells Fargo account when you get your student loan.
0.25% with autopay
0.25% with autopay, you may have to pay from an account with the lender to qualify.
0.25% with autopay. Additional 0.25% interest rate deduction if you have an
5, 7, or 15 years
5 - 15 years
5, 10 or 15 years
Cosign release option
Yes, you can apply after 36 to 48 consecutive full payments
Yes, you can apply after 24 consecutive full payments. Or, after 48 consecutive full payments if your first payment is late.
Yes, you can apply after
Yes, you can apply after 12 to 36 consecutive full payments
Yes, you can apply after 36 consecutive full payments
$25 monthly payments
Request a 1% principal (the loan amount that was disbursed) reduction after you graduate.
*Rates are current as of July 2, 2018, and may include a 0.25% autopay discount.
#1 SunTrust Custom Choice Loan
SunTrust Bank took the top spot in our comparison of the top private student loan lenders with its Custom Choice Loan. The bank also offers Union Federal Private Student Loans through a partnership with Cognition Lending.
Why we like SunTrust
There are several savings opportunities that help SunTrust’s Custom Choice Loan that help it stand out from the competition. First, as of July 2, 2018, SunTrust had the lowest possible fixed interest rate of the 10 lenders we compared.
Additionally, you can get a 0.50% interest rate discount if you sign up for autopay from a SunTrust Bank account, or a 0.25% interest rate discount with autopay from a different account. And SunTrust Bank will reduce your loan balance by 1% of the disbursed loan amount when you apply for the reduction and show proof of graduation with a bachelor’s degree or higher.
Borrowers can also choose from four different repayment plans: start making full payments immediately, make interest-only payments, pay $25 a month or fully defer payments.
Where SunTrust may fall short
The one big drawback to the SunTrust’s Custom Choice Loan is that you’ll have to make 36 or 48 consecutive full payments before you can apply to release a cosigner.
#2 Wells Fargo Collegiate Student Loan
You’ll likely recognize Wells Fargo, as it’s one of the largest banks in the U.S., but you may not have realized that it offers student loans. In fact, the company actually has several different student loan programs, with offerings for community college students, undergraduates or graduates and professional school students.
Why we like Wells Fargo
Like many other lenders, Wells Fargo offers a 0.25% interest rate discount if you enroll in autopay. In addition, you can get a permanent 0.25% to 0.50% interest rate reduction if you or your cosigner have an eligible Wells Fargo student loan, consumer checking account or Portfolio by Wells Fargo relationship.
Where Wells Fargo may fall short
You have to choose a 15-year term for your student loan, and if you stick to making your required payment amount you could wind up paying more in interest than if you took out a shorter loan elsewhere.
Also, be sure that you make your first full payment on time. If it’s late, you’ll need to make 48 consecutive full payments (rather than 24) before you can apply to release a cosigner.
#3 Sallie Mae Smart Option Student Loan
Sallie Mae offers a wide range of student loans to undergraduate, graduate and professional students, and their parents. That may not come as a surprise though, Sallie Mae is one of the most widely known private student loan companies.
Why we like Sallie Mae
The undergraduate Smart Option Student Loan has a few standout benefits, such as the option to release a cosigner after making 12 consecutive monthly payments. You can also choose from three repayment plans: full deferment, $25 monthly payments or interest-only payments. And if you’re having trouble making payments after graduation, you can request to make 12 interest-only payments.
Borrowers also get non-loan related perks, such as quarterly access to one of their FICO credit scores. You can also choose to get 120 minutes of free tutoring from Chegg Tutors or free access to Chegg Study for four months (or a combination of the two).
Where Sallie Mae may fall short
Overall, Sallie Mae offers borrowers a variety of choices and benefits. However, it doesn’t offer as many potential discounts as some of the other top lenders. Still, if you find you qualify for a lower pre-discount rate with Sallie Mae than another lender, Sallie Mae could indeed be a smart option.
#4 LendKey Private Student Loan
LendKey stands apart from the other lenders on the top five list because it technically doesn’t loan you money. Instead, LendKey has created a centralized, uniform (and easy-to-use) application that you fill out to get student loan offers from regional banks and credit unions.
Why we like LendKey
Being able to fill out a single application and compare multiple loan options can help you find a low rate, plus the application is quick and easy to fill out. Additionally, some of LendKey’s lenders may let you release a cosigner after making 12 consecutive full payments, which ties for the fewest number of required payments among the top lenders.
LendKey particularly stands because the high-end APR rate for variable- and fixed-rate loans from its lending network are 2% to 3% lower than other competitors. That may not seem like a big difference, but it could lower your monthly payments and lead to saving hundreds to thousands of dollars over the lifetime of the loan.
Where LendKey may fall short
Regional banks and credit unions may not offer student loans nationally, so the interest rate ranges that LendKey advertises may not be available to every borrower. The fine print and eligibility requirements could also vary from one lender to another.
For example, some lenders may require you use autopay from an account with the lender to qualify for a 0.25% interest rate discounts (others may let you qualify with autopay from any account). And how many consecutive payments you need to make before you can apply for a cosigner release, if you can apply at all, could also vary.
All LendKey lenders only offer a 10-year loan term. Other lenders offer a shorter term, which sometimes corresponds with lower interest rates, or you want to lower your monthly payment by choosing a longer term from a different lender.
Also, LendKey student loans don’t offer full deferment and you’ll have to make $25 monthly payments once your loan is disbursed. This could lower your total cost of borrowing compared with full deferment, but if you don’t have any income while you’re at school, it could be difficult to afford the monthly payment.
#5 Citizens Bank Student Loan
Citizens Bank is a large traditional bank with over 1,000 branches in the Midwest and along the East Coast. It offers student loans to undergraduate and graduate students, their parents and student loan refinancing.
Why we like Citizens Bank
Citizens Bank’s lowest possible variable-rate APR is the lowest of our top five lenders, but even if you don’t qualify for the lowest rate it’s worth considering. And if you or your cosigner have a qualifying bank account or loan from Citizens Bank, as that could make you eligible for a permanent 0.25% interest rate reduction on your student loan.
You may also qualify for multi-year approval if you have more than a year left before you graduate. Often, you may need to apply for a student loan at the start of each term. But with multi-year approval, you could choose (there’s no obligation) to borrow additional money for another term without having to fill out a new application.
Where Citizens Bank may fall short
The primary drawback is the 36-payment requirement to apply to release a cosigner. This aside, Citizens Bank offers competitive rates, a variety of loan terms and interest rate discounts that are in line or could be better than many of the other private student loan companies.
Determine if a private student loan is right for you
After comparing your options, you may be able to identify the private student loan lender that offers you the best overall loan. However, you may want to take a step back and consider all your options before committing.
Federal student loans. Often, federal student loans should be a borrower’s first choice if he or she has to borrow money. In part, this is because federal student loans offer loan forgiveness programs, repayment plans and guaranteed options to defer payments or put your loans in forbearance that aren’t available from private student lenders.
Also, if you haven’t built credit of your own and don’t have a creditworthy cosigner, federal student loans could be your only option. Most don’t have a credit requirement, and the federal loans for graduate or professional students and parents that have a credit check don’t vary their interest rate based on your credit. By contrast, even with a creditworthy cosigner, you may wind up with higher interest rate if you take out a private student loan.
However, there may be times when a private student loan makes sense or be a necessity. For example, undergraduate federal student loans have annual ($5,500-$7,500) and aggregate (up to $31,000) borrowing limits that may not be enough to cover your educational expenses.
Even if your unsure about whether you’re going to take out federal or private student loans, you may want to fill out and submit the Free Application for Federal Student Aid (FAFSA) every year. In addition to being a requirement for federal student loans and work-study aid, you may need to submit the FAFSA to qualify for some grants and scholarships.
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