The U.S. Department of Education announced federal student loan rates for the 2024 to 2025 academic year, and they're the highest they've been in over a decade.
Interest on direct subsidized and unsubsidized loans has gone from 5.50% to 6.53% for undergraduate loans and from 7.05% to 8.08% for graduate loans. For parent PLUS loans, which allow parents to help contribute toward education expenses not covered by other financial aid, they jumped from 8.05% to 9.08%.
Federal student loans are typically the first stop when financing higher education: You don't need a credit history or co-signer and the interest rates are fixed, so your monthly payments won't ever change. They also offer flexible repayment options, extensive borrower protections, delayed interest accrual and — historically, at least — lower rates than those offered by private lenders.
But with federal student loan rates breaking records, is it time to consider a private loan? Here's what you need to consider.
Private student loans
Compare private student loans
Should you take out a private student loan?
When it comes to student loans, the general recommendation is to exhaust all federal loans and financial aid options before first turning to private student loans. More than 90% of education debt is federal student loans.
But the current rate environment means some borrowers taking out new student loans may want to rethink this advice. To decide if you should take out a private student loan, ask yourself these questions.
What's your credit score?
Unlike federal loans, private student loan lenders use your credit score to determine your eligibility. Because they only perform a soft credit inquiry when you prequalify, though, it won't ding your credit.
If you have very good or excellent credit, you may find a lower annual percentage rate (APR) with a private lender than with the Department of Education. On the FICO® Score scale, a "very good" credit score falls between 740 to 799, while 800 or above is considered "excellent." A 760 credit score will likely qualify you for the lowest rate and best terms.
College Ave offers student loans with fixed rates starting at 4.24% APR (including a 0.25% rate discount for autopay), well below the new rates for federal loans. Its fixed-rate APR currently goes up to 16.39% APR.
College Ave
Eligible borrowers
Undergraduate and graduate students, parents
Loan amounts
$1,000 minimum; maximum cost of attendance
Loan terms
Range from 5 to 20 years
Loan types
Variable and fixed
Borrower protections
Deferment, forbearance and grace period options available
Co-signer required?
Only for international students
Offer student loan refinancing?
Yes - click here for details
Terms apply.
Can you get a co-signer?
If you don't have a strong credit profile, a creditworthy co-signer could help you secure a better rate. Some 93% of private undergraduate loans are co-signed, according to Enterval Analytics.
Ascent Funding offers co-signed undergraduate loans with fixed rates from 4.29% APR to 15.96% APR (including 0.25% autopay discount).
Ascent® Funding
Eligible borrowers
Qualifying undergraduate juniors and seniors, graduate students
Loan amounts
Up to $200,000
Loan terms
Range from 5 to 15 years
Loan types
Variable and fixed
Borrower protections
Deferment and forbearance options available
Co-signer required?
Only for international students
Offer student loan refinancing?
No
Terms apply.
Co-signed undergraduate loans with Earnest® have a fixed APR of between 4.39% and 16.49% (including 0.25% autopay discount)
Earnest
Eligible borrowers
Undergraduate and graduate students, parents, half-time students, international and DACA students
Loan amounts
$1,000 minimum (or up to state); maximum up to cost of attendance
Loan terms
Range from 5 to 15 years
Loan types
Variable and fixed
Borrower protections
9-month grace period
Co-signer required?
No
Offer student loan refinancing?
Yes - click here for details
Terms apply.
Actual rate and available repayment terms will vary based on your income. Fixed rates range from 5.19% APR to 9.74% APR (excludes 0.25% Auto Pay discount). Variable rates range from 5.99% APR to 9.74% APR (excludes 0.25% Auto Pay discount). Earnest variable interest rate student loan refinance loans are based on a publicly available index, the 30-day Average Secured Overnight Financing Rate (SOFR) published by the Federal Reserve Bank of New York. The variable rate is based on the rate published on the 25th day, or the next business day, of the preceding calendar month, rounded to the nearest hundredth of a percent. The rate will not increase more than once per month. The maximum rate for your loan is 9.99% if your loan term is 10 years or less. For loan terms of more than 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95%. Please note, we are not able to offer variable rate loans in AK, IL, MN, NH, OH, TN, and TX. Our lowest rates are only available for our most credit qualified borrowers and contain our .25% auto pay discount from a checking or savings account.
What's your income?
Private lenders also look at your debt-to-income (DTI) ratio to get a sense of your ability to repay a loan. A higher ratio means that more of your paycheck already goes toward paying your bills, so the lower the better. To calculate your DTI ratio, divide your total monthly payments by your gross monthly earnings. Homeowners should aim for a DTI ratio of 36% or less (including your mortgage) and renters for 15% to 20% or less (not including rent).
Get prequalified
To see what terms your credit score and income can get you with a private student loan, use the prequalification tools that most lenders offer. SoFi®, for example, allows you to view your rate in just three minutes.
SoFi
Eligible borrowers
Undergraduate and graduate students, parents, health professionals
Loan amounts
$5,000 minimum (or up to state); maximum up to cost of attendance
Loan terms
Range from 5 to 15 years; up to 20 years for refinancing loans
Loan types
Variable and fixed
Co-signer required?
No
Offer student loan refinancing?
Yes - click here for details
Terms apply.
To receive a quote, you'll need to enter:
- Personal information, including address, birthday, Social Security number and citizenship status.
- Enrollment details, including school name and expected graduation date
- Financial data, including income and monthly rent or mortgage amount
You may also have to include details about your co-signer, if you have one.
While you're shopping for the best rate, see which lenders have attractive features — like an autopsy discount, flexible repayment options, deferment or forbearance and no application fees, origination fees, or charges for late payments or prepayments.
Federal vs. private student loans: What's the difference?
| Federal student loans | Private student loans | |
|---|---|---|
| Eligibility | U.S. citizens or eligible noncitizens enrolled at least half-time in an eligible degree/certificate program and maintaining satisfactory academic progress. May need to demonstrate financial need | Varies by lender, but usually includes age, credit score and income minimums. Student must be enrolled in an accredited program at eligible school |
| Application process | Fill out a FAFSA form; no credit check required unless applying for a PLUS loan | Apply directly through lender, usually with a credit check |
| Borrowing limits | Dependent undergrad: $31,000 (max $23,000 in subsidized loans) Independent undergrad: $57,500 (max $23,000 in subsidized loans) Graduate/professional students*: $138,500 (max $65,500 in subsidized loans) | Varies, but typically up to 100% of the school's certified cost of attendance |
| Interest rates | Fixed interest rate only | fixed and variable rates available |
| Terms | Standard term of 10 years (between 10 and 30 years for consolidation loans) | Varies by lender, but can range from 5 to 20 years |
| Repayment | Income-driven repayment plans; types of deferment offered include for economic hardship, unemployment, graduate fellowship and in-school deferment | Deferred, fixed and interest repayment options. Refinancing available. |
| Borrower relief | Income-based repayment plans, deferment and forbearance, loan forgiveness, public service programs; Eligible for widespread student loan relief or cancellation | Deferment and forbearance options vary, grace periods available but no income-based repayment or loan forgiveness unless borrower dies or is permanently disabled |
Source: *Graduate loan aggregate limit includes all federal loans received for undergraduate study.
Private student loans pros and cons
Before taking out a private student loan, consider the benefits and drawbacks.
Pros
- Higher loan amounts than with federal student loans
- Faster application and approval process
- Lower interest rate if you have great credit and a low DTI ratio or a co-signer
- Usually no origination fees, compared to 1.057% for federal loans and 4.228% for Parent PLUS loans
- Available to students who may not qualify for federal student loans, like international students
- Available for career-training classes, bar exam prep and other programs.
- Interest on private student loans may be tax-deductible
Cons
- Interest rate could be in the double digits if you don't have good credit or co-signer
- Limited deferment and forbearance options
- No income-based repayment plans
- No loan forgiveness programs for public service
- Widespread student loan cancellation or relief measures by the federal government don't apply to private loans.
FAQs
Is it hard to get a private student loan?
Getting approved for a private student loan can be difficult if you have a limited or no credit history. This is why many students use a co-signer, often a parent, with very good or excellent credit.
How much can you borrow with a private student loan?
The amount you can get in private student loans varies by lender and can range from $75,000 to $120,000 for undergraduate students and from $150,000 to $300,000 for graduate students, according to LendEDU. Some lenders offer loan amounts up to the full cost of attendance.
Who's eligible for a private student loan?
To be eligible for a private student loan, you must meet the lender's credit score requirements or have a co-signer who does. International students can apply for private student loans, though most often will need a co-signer who's a U.S. citizen or permanent resident.
Do private student loans allow deferment?
Deferment and forbearance options vary by lender. If you delay payments, you may eventually owe interest even if you're not making payments.
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