To compare private student loans, first borrow every federal dollar you qualify for. Then line up private offers on the same loan amount and term, and compare total cost, including fees and in-school interest, not just the advertised rate. After cost, compare the protections: whether the rate is fixed or variable, forbearance, cosigner release, and what happens if the borrower dies or becomes disabled. Federal disclosure rules give you the documents to do this and a short window to back out.
Key takeaways
- Federal loans come first. For 2026–27 the undergraduate Direct Loan rate is 6.52% fixed, and federal loans include income-driven repayment and discharge protections that private loans don’t.
- In the example below, a variable-rate offer with a 3% fee beat an 8.50% fixed offer by $1,008.00 when rates stayed flat. It cost $1,742.95 more when its rate rose 2.5 points.
- Paying interest while in school ($106.25 a month in the example) cut the total cost by $933.06.
- You get 30 calendar days to accept an approved private loan, and three business days to cancel after the final disclosure. No money is disbursed until that window closes.
- Cosigner release is often hard to get. Treat it as a bonus, not a plan.
Step 1: Use up federal aid first
File the FAFSA every year, even if you expect little need-based aid. It’s the gateway to grants, work-study and federal loans. Federal Direct Loans for undergraduates first disbursed from July 1, 2026, through June 30, 2027, carry a 6.52% fixed rate (Federal Student Aid, as of October 2026). The loan fee is 1.057% on loans first disbursed from October 1, 2026, through September 30, 2027. You don’t need a credit check or a cosigner, and you get access to income-driven repayment, deferment and death and disability discharge.
The 2025 budget reconciliation law (Public Law 119-21, often called the One Big Beautiful Bill Act) changed how much some families can borrow from the federal government. As of October 2026, the rules for periods of enrollment starting on or after July 1, 2026, are:
- Undergraduates: annual and aggregate Direct Loan limits are unchanged.
- Graduate students: up to $20,500 a year and $100,000 in total in unsubsidized loans.
- Professional students (such as medicine, law and pharmacy): up to $50,000 a year and $200,000 in total.
- Grad PLUS: no new Grad PLUS loans. Students who were enrolled on June 30, 2026, and had a Direct Loan for their program can keep the old terms through the 2028–29 award year at most.
- Parent PLUS: capped at $20,000 a year and $65,000 in total per dependent student, with a similar transition exception.
- Lifetime limit: $257,500 for most student borrowers, not counting parent PLUS loans.
Those caps mean more graduate students and families will face a gap that only private loans can fill (Federal Student Aid; U.S. Department of Education final rule, May 1, 2026). Before you borrow privately, ask the financial aid office about appeals, payment plans and institutional aid, and check whether a parent PLUS loan makes sense for your family.
Step 2: Know which features to compare
| Feature | What to look for | Why it matters |
|---|---|---|
| APR | The APR, which includes fees, for the same amount and term | Two loans with the same rate can cost different amounts once fees are counted |
| Fixed or variable rate | For a variable rate: the index it follows, how often it can change, and any cap | A variable rate starts lower but can rise every month or quarter for 10 years or more |
| Origination fee | A percentage taken out of the disbursement | You have to borrow more to end up with the amount you need |
| In-school repayment options | Full deferment, interest-only payments or a small fixed payment | Interest that builds up in school is usually added to the balance |
| Forbearance and hardship options | Total months allowed, and whether interest is added to the balance | This is your safety net if you lose income. Lenders set their own rules |
| Cosigner release | Number of on-time payments required, income and credit tests | Releasing a cosigner is often harder than lenders’ marketing suggests |
| Death and disability | Whether the lender discharges the debt | Federal law requires releasing the cosigner if the student dies (loans since Nov. 20, 2018), but cancelling the debt itself is up to the lender |
| Default terms | Whether the cosigner’s death or bankruptcy can trigger default | Federal law bars defaulting the student on that basis alone for loans since Nov. 20, 2018 |
Step 3: Use the required disclosures
Private education loans have their own disclosure rules under the Truth in Lending Act (Regulation Z, subpart F). You should see three sets of disclosures, and each one gives you something useful (CFPB, as of October 2026).
- Application or solicitation disclosure. This shows the range of rates, whether they are fixed or variable, the fees, an example of the total cost under each payment option, and eligibility rules. It also has to say that you may qualify for federal student aid and list the federal loan rates.
- Approval disclosure. This shows your actual rate and terms. You have at least 30 calendar days to accept, and the lender generally can’t change the rate or terms during that period. The exceptions are changes to a variable rate when its index moves, changes that benefit you, and a smaller loan because the school certified less need.
- Final disclosure. This repeats the terms and starts a cancellation window. You can cancel without penalty until midnight of the third business day after you receive it, and the lender can’t disburse money until that period ends.
Before a private loan for current school costs can close, the lender must also get a signed self-certification form. This U.S. Department of Education form is available from the school’s financial aid office. It has spaces for the school’s cost of attendance, your estimated financial aid and the difference between the two, so you see the real gap before you borrow (20 U.S.C. 1019d). The rule doesn’t apply to loans that aren’t tied to attending school, such as a refinance after graduation.
The 30-day acceptance window lets you collect several approvals and compare them side by side. Don’t accept the first offer just because it arrived first.
Worked comparison: two offers for $15,000
A student needs $15,000 for senior year after federal aid. Payments start 18 months after the money is disbursed: 12 months of school plus a six-month grace period. Interest builds up during that time and is added to the balance when repayment begins. Then the loan is repaid over 10 years. Lender terms are illustrative, since no federal agency publishes average private student loan rates.
- Offer 1: 8.50% fixed, no fee.
- Offer 2: variable, 7.25% today, with a 3% origination fee. To net $15,000 after the fee, the student must borrow $15,463.92, which makes the fee $463.92.
| Scenario | Amount borrowed | Balance when repayment starts | First monthly payment | Total repaid |
|---|---|---|---|---|
| Offer 1: 8.50% fixed, payments deferred | $15,000.00 | $16,912.50 | $209.69 | $25,162.95 |
| Offer 1, paying interest in school ($106.25 a month) | $15,000.00 | $15,000.00 | $185.98 | $24,229.89 |
| Offer 2: variable, rate stays at 7.25% | $15,463.92 | $17,145.62 | $201.29 | $24,154.95 |
| Offer 2: rate rises to 9.75% when repayment starts | $15,463.92 | $17,145.62 | $224.21 | $26,905.90 |
| For comparison: federal undergraduate Direct Loan, 6.52% fixed, 1.057% fee | $15,160.24 | $16,642.91 | $189.15 | $22,697.33 |
Here is what the comparison shows:
- Fees change the math. Offer 2’s rate is 1.25 points lower than Offer 1’s, but the student borrows $463.92 more and pays interest on that amount too. If the rate never moves, Offer 2 still wins by $1,008.00.
- Variable rates carry the risk. If Offer 2’s rate rises to 9.75% when repayment starts, it costs $1,742.95 more than Offer 1. You can’t know which path rates will take. Pick a variable rate only if you could handle the higher payment, or plan to repay quickly.
- In-school interest is the cheapest cost to cut. Paying $106.25 a month during school and the grace period keeps $1,912.50 of interest from being added to the balance, and saves $933.06 in total.
- Federal is cheaper and safer. On the same timing, the federal loan costs $2,465.62 less than Offer 1 and comes with federal repayment protections.
Step 4: Decide on a cosigner carefully
Most undergraduates need a cosigner to qualify for a private loan or get a decent rate. The cosigner owes the full debt. Late payments show up on both people’s credit reports, and the loan can affect the cosigner’s ability to borrow for years.
Many lenders advertise cosigner release after a set number of on-time payments. A 2015 CFPB review found that 90% of borrowers who applied for release were rejected, often under criteria they didn’t understand. The review also found that some lenders’ policies disqualified borrowers who had used forbearance (CFPB, 2015). Ask for the release criteria in writing before you sign. If release falls through, refinancing in the student’s name alone later can take the cosigner off the loan. See how to refinance student loans.
Federal law adds two protections for private education loans entered into on or after November 20, 2018. The holder must release a cosigner within a reasonable time after learning the student borrower has died. And the lender can’t declare a default against the student solely because a cosigner died or filed for bankruptcy (15 U.S.C. 1650(g), as of October 2026). Whether the lender cancels the remaining debt when the student dies or becomes disabled is a contract term, so compare it.
When a private student loan is a bad idea
- You haven’t used your federal options. If the FAFSA isn’t filed or federal loans are left unused, fix that first.
- Expected earnings can’t support the payment. A private lender won’t base payments on your income. In the example, each $15,000 borrowed costs $201.29 to $224.21 a month for a decade. Multiply that by the number of years you plan to borrow.
- The cosigner can’t afford to pay. If a parent would struggle to make the payments, the loan puts two households at risk.
- The program or school is uncertain. Borrowing privately for a program you might not finish leaves you with the debt and no degree.
- A cheaper fix exists. A tuition payment plan, a semester of part-time work or a lower-cost school can cost far less than 10 years of payments.
Good credit history helps the student qualify alone later. If the student has none yet, see how to build credit from nothing.
Frequently asked questions
Does shopping for private loans hurt my credit?
Prequalification with a soft credit check doesn’t affect your score. A full application usually means a hard inquiry, which can lower a score slightly for a while. Ask each lender which kind of check it uses, prequalify broadly, and submit full applications only to your top choices.
Should I choose a fixed or variable rate?
Fixed rates give you a predictable payment for the life of the loan. A variable rate can save money if rates stay flat or fall, or if you repay quickly. It’s a poor fit if a higher payment would strain your budget. Check the disclosure for any cap on increases.
Can I cancel a private student loan after I sign?
Yes, within a short window. You can cancel without penalty until midnight of the third business day after you receive the final disclosure, and no money is disbursed until then. After disbursement, you’d need to repay the funds under the lender’s terms.
Are private student loans eligible for income-driven repayment or forgiveness?
No. Federal income-driven plans and Public Service Loan Forgiveness apply only to federal loans. Some private lenders offer temporary reduced payments, but those are lender policies, not legal rights.
How much should I borrow privately?
Borrow only the gap shown on the self-certification form after grants, savings, work and federal loans, and only for the current year. Reapply each year so you never borrow ahead for costs that may change.
Sources
- Federal Student Aid, Interest Rates for Federal Direct Loans First Disbursed Between July 1, 2026, and June 30, 2027 (GENERAL-26-33), accessed Oct 2026
- Federal Student Aid, FY27 Sequester-Required Changes to the Title IV Student Aid Programs (GENERAL-26-28), accessed Oct 2026
- Federal Student Aid, One Big Beautiful Bill Act Updates, accessed Oct 2026
- U.S. Department of Education, Federal Student Loan Program Final Regulations, 91 FR 23768 (May 1, 2026), accessed Oct 2026
- CFPB, Regulation Z § 1026.47, Content of disclosures, accessed Oct 2026
- CFPB, Regulation Z § 1026.48, Limitations on private education loans, accessed Oct 2026
- CFPB, Regulation Z § 1026.46, Special disclosure requirements for private education loans, accessed Oct 2026
- 15 U.S.C. 1650, Preventing unfair and deceptive private educational lending practices, accessed Oct 2026
- CFPB, Finds 90 Percent of Private Student Loan Borrowers Who Applied for Co-Signer Release Were Rejected (2015), accessed Oct 2026
- 20 U.S.C. 1019d, Self-certification form for private education loans, accessed Oct 2026
- Federal Student Aid, Income-Driven Repayment Plans, accessed Oct 2026
This article is general education, not individualized financial, tax or legal advice.
