Why Private Student Loans Are A Last Resort for Paying for College

Flickr user Nic McPhee

Private student loans are offered to students by banks, credit unions, and other private financial institutions. While many students take loans to pay for their college education, private student loans are a last resort. Why is that?

Let’s answer those questions. Here’s what you need to know.

The Downside Of Private Student Loans

Private lenders typically approve loan applications based on the borrower’s credit history. As a student, chances are you haven’t had the opportunity to build your credit history. That makes it very difficult for you to get approved for a loan. Most lenders will only approve if you have a credit-worthy co-signer but using a co-signer is not without its risks.

Private student loans come with higher interest rates, making them an even bigger drawback. By the time you have finished paying off the loan, you will have paid back several times over the initial amount that you borrowed.

In comparison to federal student loans, private loans tend to be more inflexible for repayment plans. Most private lenders do not offer any forgiveness options, unlike federal loans.

What Are Your Other Options?

The first resource to tap into is free money by way of scholarships and grants.

Scholarship money is free, which means you do not have to return it and neither do you have to worry about interest accruing on the amount that you win. Spend time exploring scholarship opportunities and apply to as many scholarships that you are eligible for. There is no limit to the number of scholarships that you can apply to and the amount of money that you can win.

Grants are need-based sources of free money. If you can submit the necessary paperwork to demonstrate financial need, you may qualify for a substantial amount of aid through grants.

Your Student Loan, Your Way.

Variable rates from 4.98% - 12.79% APR


Federal First: Private vs Federal Student Loans

In the whole private vs federal student loans showdown, go federal first. These loans are funded by the federal government and come with much lower interest rates, flexible repayment options and even a forgiveness program, which is subject to eligibility. To avail of federal student loans you must first file your FAFSA or Federal Application for Student Aid.

The college you have applied to will put together a financial aid package based on the information you provide on the application. If, and only if, the financial aid offered to you is still not enough and you have no other way to get the money you need to cover your college expenses, only then should you consider taking a personal loan.

Finding Yourself at the Last Resort?

If you do find yourself needing a private student loan to fill the financial gap—as many students do—you’ll need to do plenty of research to find the student loan that works best for your personal situation. Don’t rush into taking out a loan. Do your research, learn about your options, and then consider a private student loan.

College Raptor can help you there! With our free Student Loan Finder you can compare lenders and interest rates side by side!


Lender Rates (APR) Eligibility
Citizens logo.
6.97%-15.03%* Variable
5.99%-14.00%* Fixed
Undergraduate and Graduate
Sallie Mae logo.
6.37% - 16.70% Variable
4.50% - 15.49% Fixed
Undergraduate and Graduate
Credibe company logo.
4.98% - 16.70% Variable
4.07% - 15.66% Fixed
Undergraduate and Graduate
Lendkey company logo.
6.07% - 11.31% Variable
4.39% - 10.39% Fixed
Undergraduate and Graduate
Ascent company logo.
6.22% - 16.08% Variable
4.09% - 15.66% Fixed
Undergraduate and Graduate
6.54% - 11.08% Variable
3.95% - 8.01% Fixed
Undergraduate and Graduate
Earnest company logo.
5.62% - 18.26% Variable
4.11% - 15.90% Fixed
Undergraduate and Graduate
4.98% - 12.79% Variable
8.42% - 13.01% Fixed
Undergraduate and Graduate
College Raptor is not a loan lender and does not assume responsibility for suggesting a loan to a user who may not be eligible for it. Rates, terms, conditions, eligibility, approval, and other considerations are the decisions of the lenders and may vary depending on which lender or marketplace the user selects. We urge users to carefully consider and review all loan options and terms before committing to taking out a loan.