How to Apply for Private Student Loans

Abigail Eun
Abigail Eun

Abigail Eun is a freelance writer and personal finance expert. Through diligent research and continuous learning, she has honed her knowledge in budgeting, saving, investing, and debt management. Abigail is passionate about helping people get their finances in order. She believes that everyone should have access to the information they need to make sound financial decisions. Her goal is to provide clear and concise information that is easy to understand.

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February 14, 2023

Americans have borrowed more than $136 billion from private student lenders. Private student loans are a popular option because they can help fill the monetary gaps that federal student loans and financial aid do not.

If you think borrowing private loans is the right option for you, keep reading. We’ll tell you everything that you need to know about how to apply for private student loans. 

Make Sure Private Student Loans Are Right for You

Experts recommend that students exhaust federal financial aid options before borrowing private student loans. After all, private student loans do not come with the potential loan forgiveness, strong borrower protection, and varied repayment plans that federal loans offer. 

If you haven’t taken advantage of all your federal options, consider exhausting these resources before resorting to private student loans. 

However, if you are in the position where you need a private student loan, follow these five steps to apply: 

Step 1: Figure Out How Much You Need to Borrow

Unlike federal loans, private loans generally do not have a hard “limit” in regards to how much you can borrow. With some lenders, you can borrow up to $500,000, depending on the degree type. Because of their high borrowing limits, these loans will usually cover your entire cost of attendance. 

While you can borrow a significant amount, that doesn’t mean you should. Only borrow what you need, and try to minimize that amount before even considering private student loans.

Remember, the more you borrow, the more debt you will be in. And, given the way private student loans accrue interest, the amount you pay back will likely be much larger than the amount you borrow.

To determine how much you need to borrow in private loans, calculate the sum of the following:

  1. Scholarships
  2. Grants
  3. Any out-of-pocket payments (whether made by you or your parents)
  4. Federal loans

After adding up the total, subtract it from the total cost of attendance. This will give you a sense of how much you will need to borrow in private student loans. 

ScholarshipsGrantsOut-of-Pocket PaymentsFederal LoansTotalCost of AttendanceRemaining Amount to Cover in Private Student Loans

Step 2: Check Your Eligibility

Private student loans are distributed by private institutions like banks. Because each entity is separate, eligibility requirements for private loans will not be the same across the board. 

However, there are general eligibility requirements that all borrowers will have to meet:

  1. Be enrolled in a qualifying program. Private student loans are for students only, meaning you will have to be enrolled in an eligible university, trade school, college, etc. 
  2. Be a U.S. Citizen, permanent resident, or an eligible international student. Generally, private student loan lenders require you to have a Social Security Number and an eligible citizenship status. (If you are an international student, don’t worry. There are other options if you don’t have an SSN.)

Step 3: Complete the Sparrow Form

The Sparrow prequalification form allows you to receive personalized private loan offers from 15+ premier student loan lenders. The form takes just a few minutes and will ask you information such as:

Personal InformationAddress
Loan InformationFinancial InformationSchool Information
First and last name
Email address
Phone number
Date of birth
Citizenship status
Social Security Number
Permanent address
Mailing address
Amount needed
When you need funds disbursed
Housing expenses
Name of school
Grade level
Expected graduation date

Step 4: Compare Loan Options

After submitting the Sparrow form, you’ll be able to see which private student loans you’re prequalified for. Then, it’s time to compare the loan offers side-by-side so you can select the best loan for you.

You’ll be able to compare aspects such as the interest rate, repayment term, and total cost of the loan(s). Make sure to consider the following:

Annual Percentage Rate (APR)

The Annual Percentage Rate (APR) is the yearly interest charged on the loan, including any additional fees like origination fees. The larger the annual percentage rate is, the more money you will have to pay. Therefore, it’s best to secure the lowest APR possible. 

Interest Rate

An interest rate is the amount you will be charged to borrow the loan (not including any fees), expressed as a percentage of the principal amount you borrow. For example, if you borrow a loan of $20,000 with an interest rate of 12%, the interest that accumulates on the loan will be $2,400. Therefore, you will have to pay a grand total of $22,400. The larger the interest rate is, the more money you will have to pay. Therefore, Like APR, it’s best to secure the lowest interest rate possible. 

Fixed vs. Variable Interest Rate

Fixed rates are set and will remain the same for the entirety of the loan. Variable rates, on the other hand, change based on the state of the economy.

Fixed rates tend to ease borrowers’ minds, given that you’ll never be subject to a higher interest rate, regardless of how the market changes. However, fixed rates can be higher than variable rates. While variable rates tend to be lower, they can be volatile depending on the market conditions.

Determine which you are more comfortable with, then opt for that type of interest rate. 

Monthly Payment

Depending on the interest rate and repayment period you receive on each loan, your monthly payment may differ significantly. Therefore, compare the monthly payments you will have to make with each respective loan, and determine whether or not the amount will fit in your budget

Repayment Terms

Repayment terms are basically the “contract” for private loans – it covers the interest rate of the loan, your specific repayment plan, any penalties you may be subject to, deferment and forbearance options, and more. Be sure to thoroughly understand each loan’s repayment terms so you know exactly what you are getting into.

Grace Period

A grace period is a period of time where borrowers do not have to make any student loan payments. Generally, borrowers have a grace period of six months after graduation. Determine if each student loan has a grace period, and gauge how useful it will be for your financial situation. 

Cosigner Terms

Some private lenders may require you to have a cosigner to strengthen your credibility as a borrower. Think of it this way: lenders want to be confident you’ll return the money you borrowed safe and sound. So, if you don’t have a history of effectively managing debt (which is common for college-aged borrowers), you may need someone who does to cosign the loan alongside you.

Before accepting a loan offer and adding a cosigner, check if the lender offers the option for cosigner release. Some cosigners prefer to be released from loan after helping the borrower secure it, and without a cosigner release policy, they’ll be stuck with the loan until it’s paid off. 


Forbearance is a period of time where you can stop making student loan payments due to financial hardship or other extenuating circumstances. Keep in mind that interest will still accrue during forbearance periods, however, it’s good to have as a back-up option if you need it.

Some private lenders offer forbearance options for borrowers, while others don’t. While you may never need to use it, it could be a safe option to have. 

Total Cost

It’s important to calculate the total cost of the loan to see how much you’ll pay over time. This way, you can see how interest, fees, and other costs will affect the loan options, even when borrowing the same amount. 

Lender Benefits 

Some private lenders offer benefits like referral bonuses, free financial planning, airline miles, and other perks if you borrow with them. While lender benefits shouldn’t be the most important factor, they can be useful to consider when two loan options are virtually the same.

Step 5: Complete the Formal Application with the Lender You Choose

After identifying the private loan that best suits your needs, it’s time to submit a formal application with the lender. 

Gather the following materials to make applying for the loan an easier process:

  1. Social Security Number
  2. Permanent address and/or school address 
  3. School enrollment information
  4. Employment information
  5. Financial information (monthly mortgage payments, income, auto payments, etc.)
  6. Loan amount you are requesting, as well as information on financial aid

Closing Thoughts From the Nest

Searching for, choosing, and being approved for a private student loan can be a difficult and tedious process. However, Sparrow is here to help. Consider submitting a free application with us today to see which private student loans you qualify for.

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