How Do Private Student Loans Work | Earnest

How Do Private Student Loans Work?

By Sasha Bulatskaya | Published on May 8, 2026

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TL;DR

Most borrowers take out a private student loan after receiving their FAFSA financial aid and maxing out federal student loans. While this is a smart move, it also means many wait until the last minute and don’t have time to research lenders or understand how private student loans work.

The biggest difference is private student loans are offered by banks, credit unions, and other financial institutions, while federal student loans are funded by the government.

Let’s cover the basics of private student loans, how the application process works, and what you should look for when taking out a private student loan.

Understanding private student loans

Before you apply for private student loans, it’s a good idea to get familiar with how they work. These three questions can point you in the right direction:

Why do interest rates matter for private student loans?

Interest is one of the most important parts of your loan. Lower interest rates could make it easier to pay down your debt, whereas a high interest rate can make it more difficult. When looking for a private student loan, check the interest rates on the lenders’ websites and compare them to get the best deal.

Federal student loans typically have a fixed interest rate, meaning the rate doesn’t change over time. Private student loans can have either variable or fixed rates. Variable interest rates fluctuate based on the economy and may be higher or lower than federal student loans, depending on your creditworthiness and other factors.

To estimate your potential rates, check out our student loan calculator.

Do you need a cosigner to take out private student loans?

Unlike federal loans, you often need a good credit score and minimum income to be approved for a private student loan. That’s why many borrowers need a cosigner.

Most students have a limited credit history because they need more time to build their credit. Lenders want to see that one of the borrowers on the application has the income to repay the loan. In fact, 94% of Earnest’s approved undergraduate loans have a cosigner. Even if you’re a professional going back to college, if you have a poor credit score, you might need a cosigner.

To check your lender’s credit requirements, visit their eligibility page and find out what other requirements they have if you’re considering applying.

How much can I borrow in private student loans?

Private student loans may have higher borrowing limits compared to federal student loans, allowing you to borrow up to 100% of the cost of attendance. Many borrowers choose them because they need additional funding, especially for advanced degrees.

Before you apply with any lender, check their borrowing limit to make sure you’ll be able to get the total amount you need. Earnest Private Student Loans start at $1,000 (unless specified by the state of residence) and can go up to your entire cost of attendance for the academic year on approved credit.

How do you apply for private student loans?

Applying for private student loans doesn’t have to be confusing and overwhelming. You need to find the right paperwork and know what to expect.

Here’s how it works:

Step 1: Shop around

Since private student loans vary by lender, it’s smart to shop around and compare your options. As you do so, consider these factors:

Step 2: Check your eligibility

Most private lenders will offer you an eligibility check. You’ll enter some personal details, such as your name, where you go to school, and your income. Being eligible is not a guarantee of loan approval, but it’s a good way to help you decide if you should move forward with the application.

Many student loan lenders will turn down students who have a thin credit file or will recommend that you work with a cosigner instead of applying alone. At Earnest, you can check your eligibility before you apply, which can help you decide if you should apply on your own or if a cosigned loan is better for you.

Step 3: Find a cosigner (if you need one)

If you need a cosigner, what’s next? For most student borrowers, a cosigner is a parent, but at Earnest, it can be anyone willing to help you pay for your education. Many lenders allow the cosigner to be a relative, a spouse, or a friend.

Remember that by cosigning, this person will tie their credit history to yours and vice versa. Choose someone you trust and discuss your repayment upfront.

Step 4: Prep to apply

Before applying, gather all the necessary paperwork. The specific documents range from lender to lender, but generally speaking, you’ll need to know or have the following:

Step 5: Fill out the application

Once you have your documents, you’ll fill out the application. If you’re working with a cosigner, it’s best to fill out the application together, but it’s not a requirement for Earnest applicants. This is usually when the lender will do a hard credit pull that will show up on your credit report.

Every lender has a different application process, and you can search their Trustpilot reviews to see what others say about it. Our application is simple and user-friendly, and our Client Happiness team can guide you step-by-step.

Step 6: Submit your application and wait for approval

When you submit your application, your lender will analyze it and let you know if you’re approved. When we analyze your application, we may ask for more information or additional documents. You’ll notice that Earnest may ask for more documents than many other lenders, and that’s because we personalize our interest rates as much as possible to your specific situation.

Many Earnest applicants are approved in under 20 seconds, but if you get an additional document request, it can take anywhere from 3 to 5 business days.

Step 7: Accept the loan offer

Once the lender approves you and you’ve selected your loan terms, you will need to accept the loan offer within 30 days. If you go past that deadline, you’ll have to reapply for a new loan and do another hard credit check.

Step 8: Choose a repayment option

With the loan offer, most lenders will ask you to choose a repayment plan. If you work with Earnest, you can pick from a couple of different repayment plan options and term lengths from 5-15 years. You will pick your rate, repayment plan, and terms that best align with your financial goals and circumstances. Before you sign, you can clearly see your projected monthly payment, making it easy to choose an option that works well with your goals.

Step 9: Wait for your school to certify the loan

Most student loans have strict school certification requirements. Loan certification is when your lender sends the loan to your school, and they will confirm that the amount you’re borrowing is in line with your cost of attendance. Remember that the cost of attendance is determined by the college or university, not by the lender.

After your school certifies the loan, you will receive a final loan disclosure from your lender. Your loan will enter a mandatory 3-business-day cooling-off period, allowing for cancellation. The cooling-off period is a legal requirement that helps protect borrowers from being taken advantage of.

Note that Earnest may allow you to borrow up to 5% above your approved funds so you have a small buffer for your educational expenses.

Step 10: Wait for the money to be sent to your school

The final step is disbursement when the lender sends the money to your school. Your disbursements will likely occur at the beginning of the semester or right after, depending on your school. Funds are applied to tuition and fees, and any remaining balance is refunded directly to you.

How do private student loans compare to federal student loans?

Private student loans are given by private lenders like banks and credit unions, while federal student loans are provided by the U.S. Department of Education. Federal student loans also come with protections, like income-driven repayment plans and student loan forgiveness.

Private student loans may offer higher loan amounts and potentially lower rates for borrowers with excellent credit. It’s best to exhaust federal student loans first and then fill in any gaps with private student loans.

Here’s a quick recap of how private student loans differ from federal student loans:

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What makes Earnest different

Although the basic application process is similar across lenders, a few things set Earnest apart.

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Find the right financial partner

Remember, when considering private lenders, it’s essential to know how private student loans work and to choose a lender that offers you the most favorable terms. Navigating the world of student loans can be overwhelming, but knowing the options available will help you make the best decision.

To learn more about Earnest Student Loans, visit our Student Loans page.

Next Steps Checklist

FAQs

What is a private student loan?

A private student loan is funded by a bank, credit union, or other financial institution. It can help you cover the cost of college after you’ve exhausted federal student loan options.

How do private student loans differ from federal student loans?

Private student loans depend on credit and may provide both fixed and variable rates, while federal loans offer fixed rates and borrower protections, like student loan forgiveness.

Do I need a cosigner for a private student loan?

If you have limited or bad credit, applying for a private student loan with a cosigner might improve your odds and terms.

What type of interest rates do private student loans offer?

Lenders set their own interest rates for private student loans, so rates can vary. However, your credit score and income will affect the rates you receive.

How much can I borrow with a private student loan?

In most cases, private student loans like Earnest’s allow you to borrow enough funds to cover your total cost of attendance minus expected financial aid as certified by your school. Private student loan limits usually exceed federal loan limits.

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About the Author

Sasha Bulatskaya

Sasha is the Senior Manager of Brand and Content at Earnest. She has been writing for ten years and has been focused on educational finance and financial aid for over three. Her passion for mission-driven companies brought her to Earnest in 2020, and she's been helping make student finance more accessible ever since. She strives to demystify personal finance and student loans to help borrowers make the best decisions for their financial situation.