Private student loans: What you need to know

Aug 28, 2017

Ten percent of students rely on private student loans to cover their higher education costs. Questions about private loans, refinancing, and methods of repayment are common. Below is some of the information you should know about how private student loans work. Check out the Refinance and Private Loan sections of our financial literacy library for even more information.

Private student loans are different from federal student loans

  • Banks and financial institutions issue private student loans, and the government issues federal loans.
  • All loans you get by filling out the FAFSA are federal, not private.
  • Federal loans applied for with the FAFSA are based on your family’s financial situation, and private loans rely on your personal credit.

Private loans do not have the same protections as federal loans

  • Federal loans have protections that may let you lower or pause your payments. Private lenders are not required to offer.

Private lenders refinance student loans into new private loans

  • When you refinance federal or private loans, a private lender pays off your original loans and issues you a new private loan.
  • Federal loans lose their protections when refinanced into a private loan.

There are thousands of private student loan offers

  • Shopping for private student loans can be overwhelming. Use a reputable source to compare loan offers.
  • Terms and conditions such as interest rates, loan term, and fees may vary between private loans.

Most private student loan borrowers also have federal loans

  • Private student loans help when federal loans, scholarships, grants, and work-studies are not enough to cover your education expenses.

Only 5% of borrowers rely entirely on private student loans

Manage your private student loans alongside your federal loans

  • Take advantage of federal repayment plans to free up funds for your private student loans.
  • Apply for automatic payments to avoid late fees. Some lenders may also offer a discount with auto-pay.
  • Use IonTuition to aggregate your federal and private loans into one dashboard.

Visit the Private Loans section of IonLearn to find more detailed information regarding private loans, refinancing, and student loan repayment.