Private Student Loans Guru
Private Student Loans Guru

When to Consider Private Student Loans

By Mark Kantrowitz

Students should borrow federal first, because federal student loans are cheaper, more available and have better repayment terms than private student loans.

However, there are several circumstances in which a student might consider private student loans:

  • Reached Loan Limits. The Federal Stafford loan has annual and cumulative loan limits. Private student loans can fill the gap between federal student loan limits and college costs.
  • Lower Cost. Borrowers or cosigners with very good or excellent credit may be able to obtain private student loans at lower cost than the Federal PLUS loan.
  • Parents Unable or Unwilling to Borrow. Parents may be unwilling to borrow from the Federal Parent PLUS loan because the student is not obligated to repay the debt. The parents may be unable to borrow from the Federal Parent PLUS loan because of an adverse credit history or other financial difficulties, but other relatives may be willing to cosign a private student loan.
  • Lost Eligibility for Federal Student Loans. Students who have dropped below half-time enrollment or who are failing to maintain the college's satisfactory academic progress (SAP) requirements will lose eligibility for federal student loans.
  • International Students Ineligible for Federal Student Loans. International students are not eligible to borrow from federal and state student loan programs. They may, however, be able to borrow from a private student loan program, if they have a creditworthy U.S. citizen or permanent resident cosigner.
  • Not Degree-Seeking. Federal student loans are not available for students who are not seeking a degree or certificate. Some private student loans are open to students in continuing education programs.
  • Previous School Charges. Federal student loans are available to pay off no more than $200 of previous school charges. Some private student loans are more flexible, allowing the student to borrow for previous school charges that were incurred from 6 months to a year ago.
  • Education Costs after Graduation. Some private student loans are available for education costs incurred after graduation, unlike federal student loans. These include bar study loans for law school graduates, and residency and relocation loans for medical and dental school graduates.