Private Student Loans: Facts Everyone Needs to Know

by | Jun 8, 2020 | Paying for College

Student loan debt has reached astronomical levels in the United States. With 44.2 million Americans owing an estimated $1.64 trillion, the average grad leaves college with $29,200 in debt.

But that’s not the worst of it. While the burden of debt is growing, profit-seeking predatory private student loan lenders are thriving off students’ need to borrow.

We understand that loans are inevitable for many families. Higher education for some families is only accessible via public and private student loans. As Director of Research at Inversant, my role is to help parents and students make informed decisions. I’m also Managing Director at sister organization, Hildreth Institute.

At Hildreth, we research and expose systemic problems to develop and promote solutions for change. Through our work, we build support for transformative innovation in higher education financing.

To that end, our recent research sought to shine a light on the current state of private student loans and the differences between federal vs private student loans.

While many are familiar with government-subsidized low-interest loans, private student loans remain ambiguous.

There are significant discrepancies between government-issued federal student loans and private. And yet, students often confuse private with less risky federal loans.

The COVID-19 pandemic provided further evidence of the burden private loan borrowers face. The federal CARES Act, passed in response to the COVID-19 crisis, offers these borrowers no relief. Private student debt holders have only seen their financial burden exacerbated.

Below is an excerpt from our latest research. Our goal is to end the confusion by:

  • Explaining the full economic impact of private student loans
  • Sharing how financially vulnerable student debt has made us
  • Providing guidance for families looking for clarity around student loan options

Keep in mind, neither Hildreth nor Inversant regard student loans as financial aid. Loans must be repaid and with interest.

Money that has to be repaid with interest is not financial aid. I established Hildreth and Inversant so that every family in the Boston area is equipped with the knowledge, skills, support, and information they need so that their children can go to college.

– Bob Hildreth, Founder and Chair of the Board

If you do have to borrow, we’re here to fully equip you with the truth. Our goal is to help diminish what you pay for college.


Consider the context. Soon-to-be University students have emotionally-laden decisions to make.

  • Which school to attend?
  • What’s the best financial aid package?
  • What costs aren’t covered?

First-time borrowers often lack loan literacy. They might not even know the extent of what they don’t yet know.

Consider self-education. Try typing “student loans” into a search engine. You’ll first hit ads for private student loan referral services and then private lenders.

You’ll want to avoid and scroll past these loan servicers, banks, and for-profit companies ‘offering’ information for borrowers.

Instead, look for impartial resources and links to the US Department of Education’s Federal Student Aid pages. Believe it or not, they do exist, but they’re not easy to find.

It’s unfortunate, but predictable, that profit-seeking private lenders leverage these tricks. They market and sell student loans with unfavorable terms to unprepared borrowers. This becomes worse by the fact that federal government oversight in this sector is lax.

This leads to predatory lending and collection practices that leave many borrowers trapped with burdensome debt.


Federal student loans are part of the government’s financial aid program for students. The government’s underlying goal is to issue loans with favorable terms, subsidized to increase college affordability.

That means that anyone applying can access federal loans with low, fixed interest rates, flexible repayment terms, options to pause payments in case of financial hardship, and the possibility of debt forgiveness.

Private lenders’ intent is to make money. Lenders assess borrowers’ creditworthiness and often need cosigners to ensure repayment.

Private student loans often have high and variable interest rates, high fees, inflexible repayment terms, and offer little to no relief for borrowers in financial hardship.

– Bahar Imboden Akman

Private student loans often have high and variable interest rates, high fees, inflexible repayment terms, and offer little to no relief for borrowers in financial hardship.

These lending practices along with the absence of regulations and increasing college costs create a very lucrative student loan business for banks, financial institutions, specialty non-banks, and even schools.

(See Hildreth Institute, 2020. Private Student Loans: The riskiest way to finance college is to become the last resort for too many students.)


Before COVID-19, private student loan holders were still more vulnerable. Borrowers were more exposed to economic shock than peers holding only federal loans.

Inflexible repayment terms locked borrowers into higher interest rates and fees. After the US went on lockdown, Congress responded with The CARES Act stimulus package.

And yet, the Act’s student debt relief provisions only applied to government-issued student debt, and not to private debt. Borrowers unfamiliar with their student loans now began to wonder:

Did their payments qualify for automatic suspension, or not?

For private student loan borrowers, lack of debt relief under The CARES Act exacerbated their financial burden.

Compare private student loans with federal students, and it becomes clear. Private loans carry much more risk for borrowers.

Still, students seeking to finance their education turn more and more to private loans. In fact, we recently discussed this on a live conversation about private student loans and how the pandemic has exposed their riskiness.

COVID-19 and Student Loans: Everything You Need to Know

Our sister organization, Hildreth Institute, has completed a report on private student loans and how #COVID19 has exposed their riskiness.Listen in as Ariana O'Rourke, Communications Associate at Inversant discusses private vs. public loans and how two of her college classmates from Wheaton College have navigated the pandemic and its effect on their loans. Read the complete report:

Posted by Inversant on Saturday, May 23, 2020

One very important note about private student loans. Who issues the private loan matters. It determines loan terms and repayment options. The “small print” is meaningful. Always double-check it.

The legalese on the agreement sets how long and how much it will cost to repay the loan’s principal and interest.

Want to learn more? Read our full research report.

Still have questions? Contact our partner organization The Institute of Student Loan Advisors (TISLA).

TISLA is a non-profit dedicated to ensuring you have access to fair, free, student loan advice, and dispute resolution.

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