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Whether your college plans involve heading to campus or logging on for online learning, one thing is certain: You will need a way to pay. Although federal student loans are often the most affordable way to borrow, they may not be enough to cover all of your college costs. Private student loans, as well as grants and work-study programs, can cover the gap between what you need and how much you can afford to pay toward your college expenses.
But be cautious about borrowing too much. “With so much uncertainty regarding college campuses and … class schedules, planning for expenses is not an easy task,” says Bruce McClary, vice president of marketing for the National Foundation for Credit Counseling and a former U.S. News contributor.
This guide can help you navigate the school year. What you’ll learn here:
- How do private student loans work?
- What are the drawbacks of private student loans?
- How can you choose the best private student loans?
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The best low-interest student loans are federal subsidized and unsubsidized student loans, which currently carry historically low fixed interest rates and a range of consumer protections. But because there’s a limit to how much you can borrow in federal loans, some students may seek out private student loans to make up for a gap in funding.
Below we’ve listed our top-rated student loan options with the lowest advertised interest rates. Keep in mind that only the most creditworthy borrowers receive the lowest rates available, and that variable rates can increase in the future.
Our Student Loans Methodology
We scored 14 institutions that offer federal and private student loans across 15 data points in the categories of interest rates, fees, loan terms, hardship options, application process and eligibility. We chose the nine lenders who earned four stars or more.
The following is the weighting assigned to each category:
- Hardship options: 30%
- Interest rates: 20%
- Application process: 15%
- Fees: 13%
- Loan terms: 11%
- Eligibility: 11%
Specific characteristics taken into consideration within each category included number of months of forbearance available, economic hardship repayment options available beyond traditional forbearance, time to default, disclosure of credit score and income requirements.
Lenders with advertised interest rates under 3% scored the highest, as did those who offered more than the standard 12 months of forbearance, who made their loans available to non-U.S. citizens, who offered interest rate discounts beyond the standard 0.25% for automatic payments, who offered multiple loan terms maxing out at 15 years and who charged minimal fees.
In some cases, lenders were awarded partial points, and a maximum of 3% of the final score was left to editorial discretion based on the quality of consumer-friendly features offered.
U.S. News selects the Best Loan Companies by evaluating affordability, borrower eligibility criteria and customer service. Those with the highest overall scores are considered the best lenders.
To calculate each score, we use data about the lender and its loan offerings, giving greater weight to factors that matter most to borrowers. The scoring factors for private student loan providers are customer service ratings, fixed APR, variable APR, loan product availability, minimum and maximum loan terms, minimum and maximum loan amounts, minimum FICO score, and online features.
The weight each scoring factor receives is based on a nationwide survey on what borrowers look for in a lender.
To receive a rating, lenders must offer qualifying loans nationwide and have a good reputation within the industry. Read more about our methodology.
How Do Private Student Loans Work?
Unlike federal student loans, private student loans do not offer standard repayment plans and interest rates. Your credit, and that of a co-signer if you have one, will affect what types of loans you qualify for and the student loan interest rate you’ll receive.
Loan Types
Private lenders may offer different types of loans depending on the degree you’re pursuing. The loan type can affect your loan amount, interest rate and repayment terms.
- Community college or technical training. Some lenders provide loans to students who are pursuing two-year degrees, attending nontraditional schools or going to career-training programs.
- Undergraduate school loans. You can take out undergraduate loans to pay for expenses while you pursue a bachelor’s degree. Undergraduate loans may have lower interest rates and higher loan limits than community college loans.
- Graduate or professional school loans. Graduate school loans tend to have higher maximum loan amounts than undergraduate loans, reflecting the higher cost of attending school for a master’s degree or doctorate. Some lenders have special loan programs for business, law or medical school.
- Parent loans. Parent loans are offered by lenders to parents of students. Some families have an informal agreement that the child will make loan payments after graduating, but the legal responsibility to repay the loan falls on the parent.
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Tips for Comparing Low-interest Student Loans
Federal student loans provide the same fixed rate to every borrower regardless of credit history. That’s one of their biggest advantages. It’s always best to take out the maximum amount of federal student loans you qualify for before turning your attention to private student loans.
When comparing private lenders, know that only the most creditworthy borrowers—typically those with good or excellent credit scores, steady income and low debt-to-income ratios—will qualify for the lowest advertised interest rates. That’s true if you apply with a co-signer, too; the better their credit profile, the lower the interest rates you’ll receive.
If you have poor credit or no credit, consider working specifically with a lender that offers student loans for bad credit. Many undergraduates who don’t yet have lengthy credit histories apply using a co-signer, which can make them eligible for a wider range of loans at lower interest rates. But if you don’t have access to one, look into our picks for the best student loans without a co-signer.
Beyond interest rates, when deciding on a loan, consider features like available economic hardship programs, whether or not the lender allows you to release your co-signer after a period of time and the number of loan repayment schedules you can choose from.
How are interest rates determined for private student loans?
Private student loans usually offer variable and fixed interest rates that are based on the borrower’s creditworthiness. Variable rates rise and fall according to the index they follow. For example, the lender may use the prime rate as its benchmark.
If you have good or excellent credit, then you’ll be eligible for a lower interest rate. But if you have poor or fair credit, prepare for an interest rate on the higher end of the range. Using a creditworthy co-signer can help you get a lower rate.
Should I choose a fixed or variable interest rate?
Fixed rates are the safer bet because they’ll never increase in the future. Especially if you borrow during a period when interest rates are low, you’ll benefit from a rate that will stay low even if economic conditions change.
Some lenders offer variable rates that start out markedly lower than fixed rates. The risk in borrowing a variable-rate loan is that the rate will increase over time. But if you have a plan to pay down your student loan very quickly after graduation—or, even better, while you’re still in school—you may be able to avoid pricey increases in interest.
Is it possible to get a lower rate in the future?
Student loan refinancing is a way to get a lower interest rate on loans you’ve already borrowed. When you refinance, a new private company—typically a bank, credit union or online lender—pays off the student loans you choose to refinance, and you’ll get a new loan with an interest rate tied to your credit history, income and other characteristics.
Many lenders require a degree in order to refinance, so it’s best to wait until you’ve graduated. Some lenders have more relaxed degree requirements, but they may want to see a history of on-time student loan payments for a period of time first (say, 12 months). You also typically must be out of school before refinancing, with some exceptions.
You should consider student loan refinancing if you have a good or excellent credit score and stable income (or a co-signer who does) and your current loans have high enough interest rates that you’ll benefit from a lower rate. Of the lenders that disclosed their minimum credit scores for student loan refinancing to Forbes Advisor, all had a minimum credit score of 650 or higher.
How Can Students Maximize Federal and Free Financial Aid?
Before you consider private student loans, try to make the most of federal and free financial aid, including private scholarships.
You may be eligible for federal Direct Unsubsidized Loans, but there are limits on how much you can borrow each academic year and overall. Annual borrowing limits range from $5,500 for dependent undergraduate students to $20,500 for graduate or professional students.
“Your first step in financing your education is to submit a Free Application for Federal Student Aid, commonly called a FAFSA,” says Jay S. Fleischman, a lawyer who advises student loan borrowers on effective repayment strategies.
Even if you don’t think you’ll need financial assistance, or think you won’t qualify, submit a FAFSA, which is the key to most financial aid. It’s a requirement for the student financial assistance programs authorized under Title IV of the Higher Education Act, including federal loans, grants and work-study programs. These do not have income or GPA cutoffs, which are common myths.
Although it’s primarily used for federal aid, the FAFSA is often necessary for other forms of assistance. “Many states and colleges use your FAFSA information to determine your eligibility for state and school aid,” Fleischman says.
best student loans 2021
Current Student Loan Interest Rates and How They Work
The federal student loan interest rate for undergraduates is 3.73% for the 2021-22 school year.
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Learn more about private student loans
- Find a student loan: Compare private student loans, types and rates
- Pros and cons: How federal and private student loans differ
- How to apply: Wondering where to apply for student loans first?
If you have begun repayment of your federal student loans, their interest rates have been set to 0% until after Aug. 31, 2022, and no payment is due before then.
If you are still borrowing for your education, the federal student loan interest rate for undergraduates is 3.73% for the 2021-22 school year. Federal rates for unsubsidized graduate student loans and parent loans are higher — 5.28% and 6.28%, respectively. The rates for the coming year go into effect on July 1.
Private student loan interest rates can sometimes be lower than federal rates, but approval for the lowest rates requires excellent credit. If you have good credit, you may be able to refinance existing student loans to get a lower rate.
Current student loan interest rates
| Refinance student loans | |
| Fixed | 2.59% to 9.15% |
| Variable | 1.88% to 8.9% |
| Private student loans | |
| Fixed | 3.34% to 14.99% |
| Variable | 1.04% to 11.99% |
| Federal student loans (fixed) | |
| Undergraduate | 3.73% |
| Graduate | 5.28% |
| PLUS (Parent, Grad) | 6.28% |
Rates updated monthly.
Federal student loan interest rates are increasing for the 2021-22 school year and apply to loans disbursed between July 1, 2021, and July 1, 2022. The interest rates for all new federal direct undergraduate student loans are 3.73%, up from 2.75% in 2020-21. Unsubsidized direct graduate student loan rates are 5.28%, up from 4.30%. Rates for PLUS loans, which are for graduate students and parents, are 6.28%, up from 5.30%.Federal student loan interest rates by year
Private student loan interest rates by lender
It’s generally best to max out your federal student loan options before taking out a private student loan. If you need one, shop around first to ensure you get the lowest rate you qualify for. If you don’t meet a lender’s credit requirements, you can apply with a co-signer who does.
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