Private student loan requirements are worth knowing about. Federal student loans are usually a better choice, but they don’t always cover your full cost of attendance at school — so if you have a gap in funding after running through your federal aid, then private loans can save the day. But first, you’ll need to qualify.
Private student loan requirements you’re likely to encounter
Although specific criteria varies from lender to lender, these are the five most common factors private lenders consider before approving you for a loan.
1. Be enrolled in an eligible school
Perhaps it goes without saying that you have to be a student to qualify for a student loan. But not every student automatically qualifies.
For one thing, most lenders require that you be enrolled at least half time at your school. Secondly, you have to attend an eligible school. Most four-year colleges qualify, but two-year community colleges and trade schools aren’t always eligible for private student loans.
That said, you might be able to find a private student loan designed specifically for community college or vocational students. Wells Fargo, for instance, offers career training loans for students attending two-year programs or trade schools.
If you’re unsure whether your school qualifies, speak with the private lender about your options. You can also talk to your financial aid office for more information.
2. Meet age, education and citizenship requirements
Another set of requirements relates to your age, education and citizenship status. To take out private student loans, you must be 18 years or older with a high school diploma or equivalent (such as a GED or home school certificate).
Generally, you must also have a Social Security number and be a U.S. citizen or legal resident — someone who has been granted permission to permanently live and work in the United States. This requirement can be tricky for international students, but there’s a potential workaround: If you have a U.S. citizen or legal resident willing to cosign for you, then you might be eligible to take out private student loans as an international student.
3. Plan to use the loan for educational expenses
Private student loans are intended to cover your costs of college, so you’ll need to use them for educational expenses.
After you apply, the lender will communicate with your school’s financial aid office to verify your information. Then, the school must certify the amount you’re asking to borrow, confirming the cost of attendance and letting the lender know about any other aid you’ve already received.
Once the school certifies your request, the lender will likely send the funds directly to your college. If there’s any money left over after covering your expenses, the school will return that amount to you. You can use this leftover money to pay for books or other related expenses. But note that these extra funds are still part of the loan that you’ll have to pay back with interest, so you’re better off returning the remainder to your lender right away if you don’t need it.
Remember, any alternative way you might have to pay these expenses — be it with savings, scholarships, or income from a part-time job — will mean a lower student loan bill after graduation.
4. Meet credit and income criteria
If you want to take out a federal student loan, you don’t have to worry about your credit score. But if you’re worried about how to get approved for a student loan from a private lender, know that you’ll face certain financial requirements.
In particular, private lenders look at three main factors:
- Your credit history
- Your income
- Your debt-to-income ratio
They’ll want to make sure you don’t have a history of defaulting on loans, and they’ll also likely consider your credit score to see how reliable you are with debt in general.
So how good does your credit need to be to get a student loan? That all depends on the lender. Although lenders don’t typically advertise a specific minimum, most look for a score in the mid 600s or higher.
Below that level, you might not qualify for a loan at all. As your credit score moves up into the 700s and 800s, however, you might not only qualify, but also have access to the lowest interest rates.
Note that besides just credit scores, many lenders also look for proof of steady income, along with a low ratio of pre-existing debts to your current salary. Basically, they want to make very sure you’ll be able to pay back the loan after you get it.
5. Be able to apply with a creditworthy cosigner if needed
If you’re a high school student, you might not have much of a credit history or income to speak of. But you don’t have to ask around about where to get a private student loan with bad credit; instead, you can apply with a cosigner.
In fact, more than 92% of undergraduate loans were issued with a cosigner during the 2017-2018 school year, according to data firm MeasureOne.
Your cosigner — often a parent or close relative — will share responsibility for your debt, but it’s up to you to have a conversation about repayment. If you’re paying back the loan, your cosigner doesn’t have to worry much. But if you can’t repay your debt, your cosigner will be just as much on the hook for the loan as you are.
That being said, some private lenders offer cosigner release after months of on-time repayment. CommonBond, for example, offers cosigner release after 24 consecutive months of repayment. So if you’re making steady progress on your private student loans, your cosigner could eventually get their name cleared off the debt altogether.
Finding a cosigner may prove difficult if no one is willing to take on the responsibility, but that doesn’t mean a private loan isn’t an option. Even though a cosigner is one of the common private student loan requirements, there are lenders out there that will approve students without one, as well as other options if no one will join you in applying for the loan.
Shop around for the best rates on private student loans
If you meet all the above requirements, you could be eligible for a private student loan. But before choosing a lender, make sure to shop around for the best interest rates.
Some lenders let you apply for a quick rate quote to see preliminary offers for a loan. The lower the interest rate you get, the more money you’ll save in the long run.
You might also consider other factors, like repayment options and customer reviews. Check out the Better Business Bureau or a related site for people’s firsthand experiences with lenders. By doing your research, you can find the best lender for you and your family’s financial situation.
A private student loan can help you cover the cost of your education, but failing to do your due diligence might leave you paying more in the future.
Kristina Byas contributed to this report.
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