Understand Private Loans

In some cases, you may consider private loans as a supplement to your federal financial aid.


Students who have exhausted all of their scholarship, grant, and federal education loan options can obtain private student loans to help finance their college education.

Private loans are credit-based loans that are not funded, or guaranteed, by the federal government. These loans should be used to help supplement federal financial aid, not to replace it.

Private student loans vs. federal student loans

Private loans are very different than federal loans. You should be aware of these differences in order to choose the loan which will be best for you. There are several important characteristics of private student loans to consider that distinguish them from federal loans:

  • Because private student loans are credit-based and a student may not have enough credit of his or her own, a co-signer for loan approval may be required.
  • The interest rate of private loans can be high because it is based on a student's credit rating.
  • The origination fees typically are higher than those of federal student loans.
  • Private loans generally offer limited deferments or forbearances, though most do offer flexible repayment plans.
  • Not all private loans offer grace periods like federal loans.
  • There is no interest subsidy on any private loan, so the student is responsible for repaying all of the interest, including the interest that accrues while he or she is attending school.
  • Private student loans CANNOT be consolidated into a Federal Consolidation Loan.
  • Most private loans require that a student be attending school at least half time.

Check your credit report

Before you borrow from an private loan program, you should check your credit report for any discrepancies. Lenders take your credit report information and use it to determine the amount you can borrow with or without a co-signer. A credit report itself will not determine if you pass a lender's credit scoring, but you can identify any problems or errors on the report before you apply.

Review repayment options

You should review the repayment options offered by each loan along with any borrower benefits offered at repayment. Typically, most private loans give students 15 to 25 years to repay the loans. Some repayment options include:

  • Monthly principal and interest payments
  • Interest only during the in-school period
  • Deferment and capitalization of interest during the in-school period

To learn more about private student loans, refer to TG's Private Loans page.


Here are other documents located on AIE.org that you may be interested in: