Important Things to Know about Private Student Loans

Paying for college and navigating financial aid can be a challenging process. That’s why we recommend our 1-2-3 approach to help you pay for college responsibly:

1. Start with money you won’t have to pay back. Supplement your college savings and income by maximizing scholarships, grants, and work-study.

  • Fill out the Free Application for Federal Student Aid (FAFSA®) to see if you qualify for need-based federal grants.
  • Use Scholarship Search for access to millions of scholarships. And you can register for free.
  • Explore an interest-free monthly payment plan.

2. Explore federal student loans. Apply by completing the FAFSA; you may qualify for a federal loan. Federal loans are not credit-based and may offer useful repayment and loan forgiveness plans.

3. Consider a responsible private student loan. Fill the gap between your available resources and the cost of college.

Consider your student loan options

Federal student loansfootnote 1

Federal student loans are available to U.S. citizens attending eligible higher education institutions at least half-time. The government sets the interest rate, as well as the loan limits, based on the student’s grade level and whether they’re classified as a dependent or independent student. You apply for federal student loans by submitting the FAFSA each year at www.fafsa.gov. The main type is the Federal Stafford Loan, which is available in two varieties:

  • Subsidized Direct Loans are available to students who demonstrate financial need. The U.S. Department of Education pays the interest while the student is in school and during the grace period and deferments.
  • Unsubsidized Direct Loans are available regardless of need. The student is responsible for paying interest that accrues on the loan, including while they’re in school.

Federal Direct PLUS Loans are available to parents who want to help their child pay for school. They’re also available to graduate students. With a PLUS Loan, parents and graduate students may borrow up to the full cost of a student’s education, less other financial aid received.

Private student loans

Private student loans are available to undergraduate and graduate students from financial institutions like Sallie Mae®. They’re designed to fill the funding gap when savings, scholarships, and federal student aid aren’t enough.

Unlike federal student loans, private student loans are not sponsored or guaranteed by government agencies and don’t require a FAFSA. They’re credit-based, which means a borrower’s credit score and history are taken into consideration, along with other factors. That’s why applying with a creditworthy cosigner may increase the likelihood that a student is approved for a private student loan.

There are different types of private loans. Private student loans like the Smart Option Student Loan® are taken out by the student with or without a cosigner. Both the student and the cosigner are responsible for the loan.

Our loans, as well as those of many other lenders, can be used to help cover up to 100% of a school’s certified Cost of Attendance (COA), less other financial aid received.footnote 1

We disburse funds directly to a school once the financial aid office certifies the Cost of Attendance (COA).

Federal student loans vs. private student loans: An examplefootnote 2

These two examples show the differences in terms of federal and private loans:

1. Federal: Mary needs a loan to help fund her bachelor’s degree and her mom wants to help out. Mary’s mom takes out a Federal Direct PLUS Loan after passing a basic credit test. Mary’s mom is the loan holder and solely responsible to pay the loan. The interest rate for the Federal Direct PLUS Loan is a fixed 6.28% with a 4.228% origination fee.footnote 1 The standard repayment term is 10 yearsfootnote 1 and begins on the final disbursement of the loan. Parents can opt to postpone payments until after their student graduates though interest would accrue during that time.

2. Private: After exhausting other funding options, Oscar needs a private loan to help pay for his bachelor’s degree; his dad wants to help out. Oscar applies for a Smart Option Student Loan. Since approval and rates for a private loan are based on a variety of underwriting factors, including credit history and income, Oscar’s dad cosigns the loan to help his son improve the likelihood of approval.

  • The loan offers the choice of making monthly interest payments, $25 payments each monthfootnote 3, or deferring payments until after school.footnote 4
  • Depending on creditworthiness and other factors, the Annual Percentage Rate (APR) on Oscar’s loan could be from 6.375% to 16.70%.footnote 4, with no origination fee, if he elects a variable interest rate, but it could go up or down after the loan is approved. Lowest rates shown include the auto debit discount.footnote 5
  • After Oscar graduates and makes 12 on-time principal and interest payments and meets certain credit requirements, he can apply to release his dad as a cosigner.footnote 6
  • The repayment term on Oscar’s loan will be between 10 and 15 yearsfootnote 3, depending on the loan amount.

Both Mary’s and Oscar’s loans offer loan forgiveness in case of their death or permanent disability.footnote 7 In addition, interest paid on both federal and private student loans may be eligible for deduction from federal income taxes, subject to certain income restrictions.footnote 8

The importance of paying your loan on time

Payment history can affect your future.

On-time student loan payments can positively impact your credit. We encourage customers to make payments online and to participate in auto-debit to reduce the likelihood of delinquency. Some loans may qualify for an interest rate reduction for making payments through the automatic debit program. We alert customers who have missed a payment and remind them to take action to return their account to current status.

For federal student loans, Congress created several repayment options including standard repayment, extended repayment and Income-Based Repayment, which can cap payments at a certain percentage of the borrower’s discretionary income. For private student loans, repayment options vary with the lender and the loan and are typically outlined in the promissory note or contract signed before the loan is accepted.

Making late payments can have an adverse impact on an individual’s credit health.

If you’re experiencing difficulty paying your student loans, we encourage you to contact your loan servicer to explore whether an alternative payment arrangement is available.

Have questions we can answer before you borrow?

Call us at

877-279-7172

footnote Loans for Undergraduate & Career Training Students are not intended for graduate students and are subject to credit approval, identity verification, signed loan documents, and school certification. Student must attend a participating school. Student or cosigner must meet the age of majority in their state of residence. Students who are not U.S. citizens or U.S. permanent residents must reside in the U.S., attend school in the U.S., apply with a creditworthy cosigner (who must be a U.S. citizen or U.S. permanent resident), and provide an unexpired government-issued photo ID. Requested loan amount must be at least $1,000. 

footnote Sallie Mae does not provide, and these materials are not meant to convey, financial, tax, or legal advice. Consult your own financial advisor, tax advisor, or attorney about your specific circumstances.

footnote 1. Federal student loan information was gathered on 3/5/2024 from studentaid.ed.gov.

footnote 2. Explore federal loans and compare to make sure you understand the terms and features. Private student loans that have variable rates can go up over the life of the loan. Federal student loans are required by law to provide a range of flexible repayment options, including, but not limited to, income-based repayment and income-contingent repayment plans, and loan forgiveness and deferment benefits, which other student loans are not required to provide. Federal loans generally have origination fees, but are available to students regardless of income.

footnote 3.  Examples of typical costs for a $10,000 Smart Option Student Loan with the most common fixed rate, fixed repayment option, 6-month separation period, and two disbursements: For a borrower with no prior loans and a 4-year in-school period, it works out to a 10.28% fixed APR, 51 payments of $25.00, 119 payments of $182.67 and one payment of $121.71, for a Total Loan Cost of $23,134.44. For a borrower with $20,000 in prior loans and a 2-year in-school period, it works out to a 10.78% fixed APR, 27 payments of $25.00, 179 payments of $132.53 and one payment of $40.35 for a total loan cost of $24,438.22. Loans that are subject to a $50 minimum principal and interest payment amount may receive a loan term that is less than 10 years. A variable APR may increase over the life of the loan. A fixed APR will not.

footnote 4. Advertised APRs for undergraduate students assume a $10,000 loan to a student who attends school for 4 years and has no prior Sallie Mae-serviced loans. Interest rates for variable rate loans may increase or decrease over the life of the loan based on changes to the 30-day Average Secured Overnight Financing Rate (SOFR) rounded up to the nearest one-eighth of one percent.  Advertised variable rates are the starting range of rates and may vary outside of that range over the life of the loan. Interest is charged starting when funds are sent to the school. With the Fixed and Deferred Repayment Options, the interest rate is higher than with the Interest Repayment Option and Unpaid Interest is added to the loan’s Current Principal at the end of the grace/separation period. To receive a 0.25 percentage point interest rate discount, the borrower or cosigner must enroll in auto debit through Sallie Mae. The discount applies only during active repayment for as long as the Current Amount Due or Designated Amount is successfully withdrawn from the authorized bank account each month. It may be suspended during forbearance or deferment.

footnote 5. The borrower or cosigner must enroll in auto debit through Sallie Mae to receive a 0.25 percentage point interest rate reduction benefit. This benefit applies only during active repayment for as long as the Current Amount Due or Designated Amount is successfully withdrawn from the authorized bank account each month. It may be suspended during forbearance or deferment. 

footnote 6. Only the borrower may apply for cosigner release. To do so, they must first meet the age of majority in their state and provide proof of graduation (or completion of certification program), income, and U.S. citizenship or permanent residency (if their status has changed since they applied). In the last 12 months, the borrower can’t have been past due on any loans serviced by Sallie Mae for 30 or more days or enrolled in any hardship forbearances or modified repayment programs. In addition, the borrower must have paid ahead or made 12 on-time principal and interest payments on each loan requested for release. The loan can’t be past due when the cosigner release application is processed. The borrower must also demonstrate the ability to assume full responsibility of the loan(s) individually and pass a credit review when the cosigner release application is processed that demonstrates a satisfactory credit history including but not limited to no: bankruptcy, foreclosure, student loan(s) in default or 90-day delinquencies in the last 24 months. Requirements are subject to change. Shortest qualification period based on a August 14, 2020 review of national private loan programs offered by publicly-traded competitors.

footnote 7. If a student dies or becomes permanently and totally disabled, all remaining payments on the loan will be waived.

footnote 8. This information is not meant to provide tax advice.  Consult with a tax advisor for education tax credit and deduction eligibility.  For more information, see IRS Publication 970.

footnote Information advertised valid as of 10/25/2024.

footnote Sallie Mae loans are made by Sallie Mae Bank. 

footnote SALLIE MAE RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS, SERVICES, AND BENEFITS AT ANY TIME WITHOUT NOTICE. CHECK SALLIEMAE.COM FOR THE MOST UP-TO-DATE PRODUCT INFORMATION.