The 22 Pros and Cons of Private Student Loans

Private student loans can help you close an education funding gap if federal student aid isn’t enough to cover school costs. Private lenders such as banks and credit unions issue private student loans, with many offering low rates for creditworthy borrowers and repayment terms of up to 20 years. While private student loans have a few benefits, federal student loans are your best first option for school.

Federal loans have unique protections and benefits you generally can’t get with private loans. Still, private student loans can help many students pay for college. We’ll discuss the pros and cons of private student loans so you can make an informed borrowing decision.

Key takeaways of private student loans pros and cons

• Always weigh the pros and cons of private loans before funding your education this way.
• Private loans have a number of advantages, such as higher borrowing limits and competitive interest rates if you have excellent credit.
• Private loans also come with several downsides, like no income-driven repayment plans, no subsidized interest while in school, and, in many cases, cosigner requirements and higher interest rates for the average borrower.

11 advantages of private loans for students

While you should almost always exhaust your federal loan options before considering private loans, there are several unique advantages of private student loans worth considering, such as higher borrowing limits, flexible repayment terms, and even lower rates for super-qualified borrowers.

1. Pro: Higher borrowing limits

Federal student loans have borrowing limits. Private student loans do too, but they aren’t as restrictive. For instance, the limit for federal Direct Loans is $5,500 in your first year of college, assuming you’re a dependent student. Limits increase by year in school, but typically not enough to cover all educational costs.

With private student loans, borrowing limits are generally higher, and you can often borrow up to the full cost of attendance at your school. So you don’t need to worry about not having enough to pay for tuition, fees, and other associated expenses.

2. Pro: Quick application process

The Department of Education recently simplified the Free Application for Federal Student Aid (FAFSA) form, but it still takes about an hour to gather all your documents and complete it. The application process for private student loans may be simpler, depending on your lender. 

College Ave, for example, advertises a three-minute loan application process. Of course, the timing of the application process will vary by lender, and gathering your information before you apply could expedite the process.

3. Pro: More repayment term choices

Federal Direct student loans have standard repayment terms of 10 years, though you can consolidate with a Direct Consolidation Loan if you’re seeking a longer term. Federal Direct Consolidation Loans have repayment periods of up to 30 years.

But many private student lenders offer a broader selection of repayment terms from the start, often five to 20 years. This flexibility lets you choose a term that best aligns with your financial situation and budget, and you might not need to worry about refinancing if your initial term remains suitable.

4. Pro: Variable rate option

All federal student loans have fixed interest rates, meaning once you take out the loan, the rate is locked in until you’ve paid it off. Many private loans have fixed-rate options, but some also offer variable-rate loans.

Variable interest rates are a double-edged sword. If the market is doing well, rates can drop lower, meaning you’ll owe less in interest each month and can put more money toward the principal. During an economic downturn, however, rates can skyrocket, making them more expensive. Variable rates are a gamble, but they can pay off big time in a good market.

And if you’re worried that your variable rate will go up sometime soon, you can always try to refinance your student loan to a fixed-rate option.

5. Pro: Available for international students studying in the U.S.

International students who study at U.S. colleges and universities typically don’t qualify for federal financial aid, such as scholarships, grants, and student loans. Many 

Private loans typically are a better alternative for international students who aren’t permanent residents and are ineligible to borrow through the U.S. Department of Education. Many private lenders offer student loans for international students, though they may require you to have a cosigner who’s a permanent U.S. resident or citizen.

6. Pro: Available for part-time and non-degree-seeking students

You need to be enrolled at least half-time to be eligible for federal financial aid, so part-time students taking only one or two classes may not qualify. Similarly, federal aid is usually reserved for students enrolled in a program that results in a degree or certificate.

Private loans have fewer restrictions. Often, you can qualify for private student loans as a non-degree-seeking student, and many private lenders also offer student loans for part-time students. These are great if you need a lighter course load while working or supporting a family, or simply want to take a course or two for professional or personal development.

7. Pro: Could be tax-deductible

The Internal Revenue Service (IRS) lets eligible filers claim a tax credit of up to $2,500 on their student loan interest. You’ll need to meet certain requirements to qualify, such as having a modified adjusted gross income (MAGI) under a certain limit and not opting for a “married filing separately” tax filing status. 

MAGI limits are $170,000 if married filing jointly and $85,000 if single, head of household, or qualifying surviving spouse. IRS Publication 970 details all the qualification requirements for this tax credit.

8. Pro: Apply anytime, year-round

Applying for federal aid means keeping track of FAFSA deadlines. While you can theoretically fill out the FAFSA at any time, aid can run out if you are a late filer. You can apply for private student loans on an as-needed basis. It’s a good idea to apply at least two months before the tuition due date to ensure you get funding in time.

9. Pro: Cosigner release options

Adding a cosigner to your private loans can make it easier to get approved and may also help you qualify for a lower rate — potentially even lower interest rates compared to the fixed rate for Direct Subsidized and Unsubsidized Loans (the lowest-rate federal loans available to undergrads). The downside for the cosigner: They’re financially responsible if you fall behind on payments.

Many private lenders offer cosigner release to make cosigning a loan less risky. Once you make enough consecutive on-time payments, you can typically apply to remove your cosigner from the loan. Sallie Mae is the best option for cosigner release; this option becomes available after only 12 months of on-time payments.

10. Pro: Additional student loan benefits

Federal student loans come with unique benefits and protections for borrowers, but some private lenders may offer perks, too. Sallie Mae, for example, has a series of scholarships for eligible applicants.

Other lenders may provide career coaching or financial education to help you better manage your money. Some might also offer multiple student loan repayment options, such as interest-only payments or the option to pay a flat amount (e.g., $25 a month) while you’re in school.

11. Pro: Can be more affordable than federal loans for well-qualified borrowers

Federal student loans have standard rates, no matter your income or credit score. Often, these rates are lower than what you can get through private loans, but that’s not always the case.

The most qualified borrowers (with strong credit and steady income) may get the lowest advertised rate from private lenders. Right now, among the top private student loans, rates are as low as 3.39%. By comparison, the lowest federal student loan rate is 6.39% for Subsidized and Unsubsidized Loans, and PLUS Loans are currently 8.94%.

11 disadvantages of private student loans

So are private loans bad? As we just explored, not necessarily. Private student loans can help fill the gap when you don’t receive enough aid to pay for college, but there are several drawbacks to consider, such as higher rates and fewer protections.

1. Con: Private student loans may have higher interest rates than federal student loans

If you want to save on interest over the life of your loan, federal loans tend to have the lowest rates for many borrowers, especially those with less-than-perfect credit. 

Private student loans may have higher rates. While they’re not as high as many other financing types, your interest costs may be higher over your loan term. This is especially true if you opt for a long term, such as 20 years. 

Here’s a look at how interest rates affect your monthly student loan payments, as well as how much interest adds up over time. For our example, we’ll assume our borrower has a $35,000 loan balance.

2. Con: Variable rates can increase over time

Private loans with variable rates are a gamble. Sure, rates could drop over time and make your private loans even more affordable, but if rates go up over time, so do your borrowing costs. If the risk of a variable rate makes you uncomfortable, limit your search to private loans with fixed rates.

3. Con: Private loans aren’t eligible for forgiveness or IDR plans

Federal loans have unique perks, including student loan forgiveness programs for qualifying borrowers through Public Service Loan Forgiveness (PSLF) and income-driven repayment (IDR) plans, which could reduce your monthly payments. The benefits are one reason a student may seek a federal student loan instead of a private student loan. 

Typically, these benefits aren’t among the key characteristics of private loans, though some private lenders may give you a choice of a few repayment plans. These plans typically offer relief while you’re in school, but you’ll need to make full principal and interest payments after graduation.

Why can’t private student loans be forgiven?

Private students aren’t eligible for student loan forgiveness by the federal government because the loans weren’t originally created by the federal government. Much like mortgages and car loans that don’t get forgiven, you must pay back everything you borrowed, plus interest, to your private lender. If you stop paying your private loans, expect legal action from collections agencies.

4. Con: No federal interest subsidy

The best type of federal student loan is a Direct Subsidized Loan, available only to undergrad borrowers (and with strict borrowing limits). While you’re in school, the federal government pays all the interest that accumulates on these loans; interest only starts to accrue after your post-graduation grace period.

In many cases, you can similarly defer repayment for private loans until after you graduate and your grace period ends. However, interest accumulates from the very first disbursement, and when you graduate and repayment begins, private lenders typically capitalize that interest, meaning it gets added to your loan amount, and interest will start to accrue on that new, higher amount.

5. Con: Private loans may lack repayment assistance, such as forbearance and deferment

Besides not being eligible for forgiveness or IDR plans, private lenders typically don’t offer forbearance or deferment if you encounter a financial hardship. You can request either with federal student loans, provided you have a qualifying reason. Both let you pause your monthly payments, though interest accrues on all your loans during forbearance and most of them during deferment.

6. Con: Cannot be consolidated into a Direct Consolidation Loan

If you have multiple federal loans with various servicers, you can choose to consolidate them for one easy monthly payment. Consolidation also helps extend your repayment term to lower your monthly payments and could help you access income-driven repayment (IDR) plan options.

Private loans aren’t eligible for consolidation. You can, however, attempt to refinance your private loans into one monthly payment, either to lock in a lower rate or lower your monthly payments. Just make sure to carefully weigh the pros and cons of student loan refinancing before moving forward.

7. Con: You risk overborrowing

Since private lenders often let you borrow up to the full cost of attendance (minus any financial aid you’ve received), it’s possible to overborrow with private student loans. And a wise college plan does not include borrowing more than you can afford to repay or more than you need. 

Ensure you have a comprehensive understanding of your college savings and federal aid before applying for private loans; this can help you avoid overborrowing.

8. Con: Payments may still be required while still in school

Many private lenders allow you to defer payment until after graduation, but that’s not always the case. With some lenders, you may be forced to make payments during school: principal and interest, interest-only, or perhaps a flat monthly fee.

Theoretically, it’s in your best interest to make payments while in school because it keeps interest in check. But if you’re a full-time student, coming up with the cash to cover repayment can be tricky, and working a part-time job could affect your studies.

9. Con: Rates and terms may be based on credit

Most federal loans don’t require a credit check. PLUS Loans are the only exceptions; you’ll undergo a credit check to take out a Parent PLUS Loan (or a Grad PLUS Loan if you’re applying before July 1, 2026; the OBBBA eliminates these loans starting in July). Private student loans, on the other hand, require credit checks and often have strict minimum credit score requirements (usually somewhere in the 600s). 

Your lender will consider your creditworthiness when determining your loan rates and terms. If you have fair credit, you could end up with a higher rate than a borrower with excellent credit. But if you have excellent credit and a stable income, you could actually qualify for a lower rate than the best federal loan options.

10. Con: You may need a cosigner

You might also need a cosigner for your private student loan if you haven’t established credit yet or have past credit mistakes. A cosigner is someone who serves as a backup payer for your loan if you default. 

Note that if you stop making your private student loan payments, your cosigner’s credit score could decline in addition to your own. Keep this in mind when choosing a cosigner, and ensure you communicate with them immediately if you find yourself unable to afford your loan payments.

11. Con: Debt may persist after death

Private lenders have no legal obligation to wipe away your student loan debt when you pass away. That means your estate (bank accounts, investments, or even your home) might need to pay off your loans before any money is distributed to your beneficiary.

Compare all the pros and cons of private student loans for college students

Federal student loans are almost always the best first choice for financial aid because of the low fixed rates, lack of credit score requirements, and borrower protections. However, in many cases, federal loans aren’t enough to cover all your college costs entirely. Private loans can help fill that gap.

The table below explores the differences between private student loans and federal student loans (as well as Parent PLUS loans, which, while provided by the federal government, are quite different from standard federal loans).

Feature	Private student loans	Federal student loans	Federal parent loans
When payments become due	Many require payments while in school; some allow deferment	Not due until after graduation, leaving school, or dropping below half-time	Can defer until student graduates, leaves school, or drops below half-time, but must be approved
Interest rates	Fixed or variable; set by lender based on credit — may be higher or lower than federal rates	Fixed; set by Congress — often lower than private loans	Fixed; set by Congress — may be lower than private loans
Subsidized options	You pay all interest	Available for qualifying borrowers with financial need	Not subsidized; you pay all interest
Credit check required	Credit check required; cosigner often needed	No credit check	Credit check required
Borrowing limits	Up to full cost of attendance (minus other aid)	Annual & lifetime federal limits apply	Up to full cost of attendance (minus other aid)
Income-driven repayment	—	✓	✓
Loan forgiveness	Not typically available	PSLF and other programs available	PSLF and other programs available
Deferment & forbearance	Varies by lender; limited options	Standard options available	Standard options available
Prepayment penalties	Check your lender’s terms	No penalty	No penalty
Consolidation and refinancing	Can refinance; not eligible for federal Direct Consolidation	Can consolidate via Direct Consolidation Loan	Can consolidate via Direct Consolidation Loan
Tax-deductible interest	Up to $2,500/year	Up to $2,500/year	Up to $2,500/year
Discharge at death	Varies by lender — some may collect from estate	Discharged upon borrower’s death	Discharged upon borrower’s death

Bottom line about private student loan benefits and considerations

Private student loans can help bridge the gap when federal student aid isn’t enough to cover all your college expenses. In most cases, however, federal loans have more benefits, including loan forgiveness eligibility, consolidation, subsidized interest (in some cases), and more generous deferment and forbearance options.

However, there are scenarios when private student loans are actually the better first choice, primarily when you have strong credit and steady income and can qualify for the lowest advertised rate.

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