Private student loans are loans made by banks and other financial institutions without the guarantee of the federal government. In most cases, private student loans are less favorable to students than federal student loans.
Less Favorable Terms and Fewer Repayment Options
The terms of private student loans are usually much less favorable than federal direct or federally guaranteed loans. Many graduate students and some undergraduates apply for federally guaranteed loans and private loans in one application package, but the private loans don’t have all of the options for repayment that government guaranteed or direct loans have.
Where to Find Private Student Loans
Many private student loans are made by the Student Loan Marketing Association (Sallie Mae). For more information on these loans, contact Sallie Mae at www.salliemae.com.
For a list of other lenders making private student loans, go to FinAid’s website, at www.finaid.org/loans, click on “loans,” then follow the link to private student loans to find a table comparing the different lenders.
Private Loans Should Be a Last Resort
Private loans are usually more expensive and have harsher repayment terms than the others described here. You should not get a private loan unless you have received all the government grants and federal direct or guaranteed loans available. Some schools may not tell you about all the federal grants and loans for which you are eligible before trying to steer you to a more expensive private loan. Private loans may also have names, such as “signature loan,” that do not clearly distinguish them from government loan programs.
To learn about the federal student loans available, see Types of Federal Student Loans.
This is an excerpt from Nolo's Solve Your Money Troubles: Debt, Credit & Bankruptcy, by Margaret Reiter and Robin Leonard.