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Guide to Private Student Loan Requirements

Guide to Private Student Loan Requirements
Rebecca Safier
Rebecca SafierUpdated February 24, 2023
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The requirements for private student loans are different from those to borrow federal student loans. Private lenders typically review your credit, income, and other factors before approving you for a loan. Because of these credit requirements, the majority of undergraduate college students apply with a cosigner, such as a parent, when taking out a private student loan. Read on for a closer look at private student loan requirements, how they differ from getting a federal student loan, and how you may be able to qualify. 

What Are Private Student Loans?

Private student loans are issued by private institutions, such as banks, credit unions, and online lenders. These loans are typically unsecured, which means they don’t need to be backed by collateral — an important difference between secured vs. unsecured student loans. Some colleges and states also issue private student loans to eligible students. You can use a private student loan to pay for qualified education expenses, such as tuition, fees, and room and board. The terms and conditions of private student loans are set by the lender, so they can vary from one loan to the next. Who is eligible for private student loans? The requirements can vary, with some private student loan lenders requiring a higher credit score or annual income than others. As mentioned, most undergraduates apply for a private student loan with a creditworthy cosigner. Your cosigner becomes equally responsible for the loan, though some lenders let you release your cosigner from the debt after a certain number of on-time payments. You can borrow a private student loan anytime throughout the year, and many lenders let you borrow up to your school-certified cost of attendance. 

Private vs Federal Student Loans

When comparing private vs. federal student loans, you’ll find some important differences. While private student loans are issued by banks, credit unions, and online lenders, federal student loans come from the U.S. Department of Education. Unlike private student loans, most federal loans don’t have a credit requirement.That means virtually any student enrolled in an eligible school can borrow a federal student loan. You can access these loans by submitting the Free Application for Federal Student Aid, or FAFSAFederal student loans come with a variety of benefits, including income-driven repayment plans, forgiveness programs, and hardship programs. Some private lenders offer hardship protections, too, but the options typically aren’t as robust as they are with federal loans. Federal student loans also come with relatively low fixed interest rates that stay the same over the life of your loan. Private loans, on the other hand, may have fixed or variable rates. Borrowers with stronger credit will qualify for better rates, while poor-credit borrowers could get higher interest rates. Because federal loans are more flexible, easier to access, and often more affordable, it’s usually a good idea to borrow them before turning to a private student loan. However, federal loans also come with annual and aggregate borrowing limits, so you might hit your maximum and still need additional funding for school.In this case, it could make sense to borrow a private student loan to cover the gap. Just be careful not to borrow more than you can afford to help avoid too much student loan debt. You can also look into refinancing your student loans when the time comes, which could help lower your payments if you qualify for a lower interest rate. 

Are Private Student Loans Difficult to Get?

Private student loans can be more difficult to get than their federal student loan counterpart, because private lenders have requirements for credit and income. To meet this criteria, you could apply with a creditworthy cosigner, such as a parent. As long as you can meet a lender’s underwriting requirements, however, a private student loan shouldn’t be too difficult to obtain. Many lenders let you prequalify online, meaning you can check your rates with no impact on your credit score. This ability to shop around should help you find a lender willing to work with you. You can also ask your financial aid office for recommendations for private student loans. Most private lenders let you borrow at any time throughout the school year, which could be helpful if you run into an unexpected financial issue. 

5 Requirements for Private Student Loans

While every lender sets its own requirements for private student loans, here are some typical ones that you’ll need to meet for your application to be approved. 

1. Credit

Lenders review your credit history and credit score when determining who is eligible for private student loans to see how you’ve handled debt in the past. A positive credit history reassures the lender that you’ll be a responsible borrower, while negative marks can be a red flag. Most lenders don’t disclose their minimum credit scores, but a score in the mid-600s or higher could be helpful to qualify for a loan. As mentioned, most undergraduate students haven’t built much of a credit history yet, so they apply with a parent or other adult as their cosigner. Stronger credit scores will qualify for more competitive interest rates, which will reduce your cost of borrowing over time. A weaker credit score could mean a higher interest rate. 

2. Income 

Private lenders also take a look at your (or your cosigner’s) annual income before approving you for a loan. You or your cosigner will likely need to upload verifying documentation, such as pay stubs or tax returns, when applying for the loan. 

3. Debt-to-Income Ratio 

A third piece of financial information that lenders often rely on is your debt-to-income ratio. This compares your monthly debt payments with your monthly gross income. Lenders look at this to make sure you’re not overextending yourself and will have enough income in your budget each month for paying back your student loans. A debt-to-income ratio of 50% or lower may satisfy this requirement, though a ratio of 36% or lower will typically be more appealing to a lender. 

4. Qualifying School 

Lenders often want to see that you’re enrolled at least half-time in a qualifying school or educational program. Before disbursing your loan, lenders will contact your school to confirm your enrollment.They’ll also ask the school’s financial aid office to certify your cost of attendance. That way, the lender isn’t giving you more money than you need to cover tuition and other costs of earning your degree. 

5. Age and Citizenship 

Finally, lenders also typically set requirements around age and citizenship. You’ll need to be the age of majority in your state (typically 18 or 19) and have a high school diploma or GED. You also may need to be a U.S. citizen or permanent resident. If you’re an international student, you may be required to apply with a cosigner who’s a U.S. citizen or permanent resident. 

Improving Your Chances of Getting a Private Student Loan

Before applying for a private student loan, consider what you can do to improve your chances of approval. Here are some steps to consider: 
  • Enlist a cosigner. Adding a cosigner to your application can go a long way toward increasing your chances of approval. Applying with a cosigner could also help you qualify for better interest rates. 
  • Improve your credit. Steps such as making on-time payments on debts, reducing your credit utilization ratio, and disputing errors on your credit report can help improve your credit. A stronger credit score can help you qualify for a private student loan and access better interest rates. 
  • Take on a part-time job. If you’re struggling to meet a lender’s income requirement, consider taking on some part-time work while you’re in school. Earning some income could also help bring down the amount you need to take out in loans. 
  • Ask your financial aid office for recommendations. A financial aid administrator can help point you in the right direction for obtaining a private student loan. The office may be able to suggest lenders or other opportunities for finding a loan, such as a private student loan from your state or your college itself. 
Finally, make sure to pursue grants and scholarships for college or graduate school. By pursuing gift aid, you may be able to reduce the amount you have to borrow in student loans. 

The Takeaway

Before turning to a private student loan, it’s generally a good idea to max out your eligibility for federal student aid, including federal student loans. If you still have a gap in funding, a private student loan could make sense. Review each lender’s requirements, and take advantage of online prequalification to browse your loan offers. By shopping around with multiple lenders, you can find a private student loan that’s the best fit for you. If you borrow more than one loan, you might eventually pursue private student loan consolidation through refinancing. Refinancing lets you combine multiple loans into one, and you may qualify for a better interest rate, too. Lantern can help you refinance your student loans and also make the process easier. By using our online tool, you can get offers from multiple lenders all at once to find the best rates and terms for your needs.

Frequently Asked Questions

Is it hard to get private student loans?
What is required to get a private student loan?
Can you be denied a private student loan?
Photo credit: iStock/Pekic

About the Author

Rebecca Safier

Rebecca Safier

Rebecca Safier has nearly a decade of experience writing about personal finance. Formerly a senior writer with LendingTree and Student Loan Hero, she specializes in student loans, financial aid, and personal loans. She is certified as a student loan counselor with the National Association of Certified Credit Counselors (NACCC).
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