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More than half to two-thirds of people who attend college take on debt — most often in the tens of thousands of dollars. According to the Federal Reserve, in 2021 the median amount of outstanding education debt was between $20,000 to $24,999 .

Federal student loans are one option for students looking to borrow to help pay for their education. In the case that federal loans aren’t enough, private student loans could be considered. Finding a reputable lender is essential when entering a long financial relationship.

Student loans are often the first major debt a young adult signs their name to, so evaluating potential lenders is a good first step when considering a private student loan.

There are some general considerations to keep in mind when evaluating private student loan lenders. Keep in mind these are general considerations when deciding between private student loan providers and not an exhaustive list.

Each potential borrower will need to consider her or his own financial situation to help make an informed decision.

1. First Things First: Reputation Before Rate

Before even considering the interest rates, savvy students look for indicators that a loan company is legitimate. Bottom-of-the-barrel interest rates might seem attractive, but if the bargain comes at the price of doing business with a dubious company, potential borrowers may want to steer clear.

Several options are available for researching a lender’s reputation. The Better Business Bureau or the local chamber of commerce are good first places to check.

Look up the name of the lender and the parent company, if there is one, to find any reviews that might be available. If nothing is found on these channels, a general search online often yields news stories or first-hand accounts pulled from multiple sources that can help paint a picture of how the lender treats customers.

Other ways to verify reputation and legitimacy are by checking any accreditations, endorsements by other credible entities, and backing by established institutions.

It’s also worth talking to recent grads and trusted colleagues. What lender do they use? What has their experience been? While anecdotal advice adds color, though, it shouldn’t be the bulk of research.

2. What Rates Are Offered?

Another factor to consider is a lender’s interest rate. The higher the interest rate, the more money the borrower will pay on top of the loan amount — it’s how the lender makes money. For example, private student loans can be fixed vs. variable and have a wide range of interest rates.

Variable Rate

A loan with a variable interest rate — also known as a floating rate — changes interest rates over time. When and how the interest rate changes depend on the terms of the loan and will vary from lender to lender. Typically, the rate is tied to a specific index and will impact monthly loan payment amounts. A rate cap is generally outlined in the terms of your loan. This is the highest the interest rate may rise.

Fixed Rate

A fixed-interest-rate loan carries an interest percentage that does not change over the life of the loan. The interest rate at the start of the loan stays the same until the loan is repaid.

Choosing Between Variable or Fixed Interest

Variable rate loans may seem attractive because the initial rates are often lower than fixed-rate loans. However, since rates will fluctuate, variable rate loans can be more costly in the long run, especially if a borrower has the loan for a lengthy period of time.

Borrowers who wish to lock in one rate and the same monthly payment each month are generally better served with fixed-rate loans. Because the interest rate doesn’t change, monthly payments will stay the same, which can help with budget planning and financial management.

3. What Are the Loan Terms?

The term refers to the length of time a borrower has to repay the loan. In general, the longer the loan term, the more interest a borrower will pay.

Shorter term lengths usually have higher monthly payments than longer term loans, as the loan has to be repaid at an accelerated schedule. Some lenders may offer flexible repayment options. Other lenders may have fixed term lengths and monthly payments.

When deciding between lenders, verifying available term lengths and options can help borrowers select a lender that offers terms that fit their budget and repayment timeline.

4. In-School Repayment Options

Will you be required to make payments on the loan while you are actively enrolled in school? Be sure to find out what the lender’s policies are. Some private lenders will allow borrowers to defer their payments while they are enrolled in school. Using in-school deferment can be helpful if you are tight on money as a college student. But, during this time interest will likely continue to accrue on the loan, which may increase the cost of borrowing over the life of the loan.

Other in-school payment options include making interest-only payments or making flat-fee payments each month. Understanding whether or not you’ll be required to make payments while you are in school is important as it can have an impact on how you manage your money as a student. Review the options offered by your chosen lender closely. For more information on college budgeting ideas and more, check out SoFi’s Ca$h Course: A Student’s Guide to Money.

5. Have You Exhausted Your Federal Loan Options?

A quick check before applying for private student loans: Did you take advantage of any available federal student loans? They offer several benefits not found with private student loans. Here’s a brief overview of some of the benefits and protections offered for federal student loans, but not private student loans:

•   Interest Rates. Federal student loans generally have a lower interest rate than private student loans. Interest rates on federal student loans are fixed and are set annually by Congress.

•   Repayment Plans. Federal student loan borrowers have a few different repayment options to choose from, including income-driven repayment plans that can help make loan payments more manageable.

•   Loan Forgiveness. Borrowers who work in public service or other qualified professions may qualify for loan forgiveness through programs like Public Service Loan forgiveness or Teacher Loan Forgiveness.

•   Loan Deferment and Forbearance Options. Loan deferment and forbearance options may be available as a temporary relief if a borrower is having trouble making payments.

•   Subsidized Loans. Undergraduate students who exhibit financial need may qualify for Direct Subsidized Loans. The government covers interest charges on this type of loan while the borrower is enrolled in school, during the loan’s grace period and during other qualified periods of deferment.

For these reasons, borrowers are encouraged to consider federal student loan options before opting for a private student loan. But, as mentioned, there are borrowing limits associated with federal student loans. And in some situations, private student loans can be a helpful tool to help borrowers pay for their college education.

6. What Fees Are Associated with the Loan?

No one likes additional fees, especially when they’re associated with a loan. Unfortunately, lender fees are not uncommon. Reading the fine print and speaking with loan representatives to understand the fees each lender charges is an important part of the search process.

Charges may include application fees, late fees, insufficient fund fees, and origination fees. Understanding which lenders charge fees can help if you are interested in avoiding student loan fees. When comparing loans from different lenders, be sure to review the APR, or annual percentage rate, associated with the loan. The APR is a reflection of the interest rate and any additional fees, so it is more representative of the total cost of the loan than comparing interest rates alone.

7. What Happens if Your Financial Situation Changes?

Unpredictable circumstances happen all the time. In recent years, recessions, pandemics, and natural disasters count among the various catastrophes impacting people all over the world. Circumstances like these — along with many others — can put a dent in your finances.

For borrowers, a change such as a job loss might mean the difference between paying their student loan bill for the month — or not. Because financial circumstances are prone to change, a borrower may want to compare private student loan lenders.

How flexible are the lenders with monthly payments? Do steep late fees pile on if a borrower can’t make a monthly payment? What happens if a borrower needs to refinance or decrease monthly payments? These are all questions to consider and discuss with potential lenders.

Lenders that lack flexibility can mean the difference between thousands of extra dollars of debt if unforeseen circumstances change your finances and you’re unable to make your payments.

8. Does the Lender Offer any Incentives or Perks?

Once the serious stuff is considered, such as reputation, interest rates, term, and fees, there’s room to evaluate lenders on what else they can offer. Some lenders, like SoFi, offer career services and rate discounts.

Others may offer bundled banking so borrowers can have all financial services in one place. There also may be referral fees a borrower can earn for recommending the lender to others.

While the perk factor probably shouldn’t carry the heaviest weight in your comparison, it still might be worthwhile to evaluate.

9. Customer Service Quality

Finally, consider the company’s customer service quality and reputation. Should you run into any issues during repayment, a company with excellent customer service can make a difference.

The Consumer Financial Protection Bureau operates an online complaint database. Here, you’re able to read any online complaints associated with a particular company in order to make a more educated decision concerning their customer service reputation.

The Takeaway

Once you complete your research and comparison shopping, you may be ready to apply for a loan to pay for your education. With SoFi private student loans, undergrads and grad students can apply for a no-fee loan. That includes no application fee, no origination fees, no insufficient fund fees, or late fees.

For further savings, SoFi also offers an interest rate deduction if you enroll in automated payments from your checking or savings account.

FAQ

What are typical private student loan interest rates?

As of August 2022, interest rates on private student loans may range from 3.22% to 13.95% fixed and 0.94% to 12.99% variable. Keep in mind that interest rates can vary from lender to lender and are based on the individual applicant’s financial history, income, and credit score, among other factors.

Can you start repaying student loans while still enrolled in school?

Yes, you can start repaying student loans while you are enrolled in school. For most federal student loans, students enrolled in school at least half-time are not required to make payments on their loan but have the option to do so.

For private student loans, the policy will depend on the loan terms and conditions. Some private lenders offer in-school deferment options while others may require in-school loan payments.

Do student loans have prepayment penalties?

Do student loans have prepayment penalties?

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

Terms and conditions apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. SoFi Private Student loans are subject to program terms and restrictions, such as completion of a loan application and self-certification form, verification of application information, the student's at least half-time enrollment in a degree program at a SoFi-participating school, and, if applicable, a co-signer. In addition, borrowers must be U.S. citizens or other eligible status, be residing in the U.S., Puerto Rico, U.S. Virgin Islands, or American Samoa, and must meet SoFi’s underwriting requirements, including verification of sufficient income to support your ability to repay. Minimum loan amount is $1,000. See SoFi.com/eligibility for more information. Lowest rates reserved for the most creditworthy borrowers. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change. This information is current as of 4/22/2025 and is subject to change. SoFi Private Student loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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If you’re thinking about buying a car, it’s important to consider how the purchase will fit into your overall financial responsibilities, including student debt. You’ll want to be sure you can afford both the cost of the car and the ongoing expense of driving and maintaining it.

Refinancing student loans to buy a car is one option that may allow you to free up money to put toward the cost of a car or monthly car payments. Here’s what to know about refinancing student loans to buy a car, if you can use student loans to buy a car, and how to make the choice that’s right for you.

Can I Use Student Loans to Buy a Car?

Federal student loans (and many private ones) are for “qualified” educational expenses, such as tuition, room and board, and books and supplies. And while the cost of transportation (for example, commuting to school) is considered a qualified expense, purchasing a car is not.

So can you use student loans to buy a car if you’re using the car to drive to class? No – only an allowance for the cost of driving the car to school would be an eligible expense. It’s an important distinction: A borrower caught misusing student loan funds can face serious repercussions, including having their loan revoked and the balance becoming immediately due.

Some private loans may have broader criteria for what constitutes an educational expense, and fewer penalties for how you use the loans. Still, using a private student loan to buy a car may not be the most efficient or smartest use of funds. You may end up paying more interest than you would on a typical car loan, and then have fewer funds to go toward the educational expenses you need.

So what do you do if you have student debt and need to buy a car? Refinancing may be an option, and can free up money in your budget to open a car loan. Here’s what to consider before refinancing student loans to buy a car.

Recommended: Should I Buy a New or Used Car?

Refinancing Student Loans to Buy a Car

When you refinance a student loan, you pay off all or some of your loans with a new loan with new terms from a private lender. The primary benefit of refinancing is that you can save money over the life of the loan if you’re able to lower your interest rate.

You can also change the terms of your payment, potentially spreading your payment over a longer period of time, and paying less each month. If you go this route, however, you may end up paying more in interest over the life of your loan.

Refinancing student loans can help lower your monthly payments and have more room in your budget to cover the costs of a car. However, it’s important to understand that if you refinance federal student loans, you’ll lose access to federal benefits and protections, such as income-driven repayment plans and forgiveness. If you’re planning to take advantage of any of these federal programs, refinancing is likely not a good option for you.

Pros of Refinancing Student Loans to Buy a Car

Considering the pros and cons of refinancing student loans to buy a car can help you decide if this choice is right for you. You’ll want to be able to cover the costs of the car as you continue to pay your student loans back. Some of the pros of refinancing a student loan to buy a car include:

Lower Monthly Student Loan Payments Can Offset Car Costs

Refinancing your student loans can lower your monthly student loan payment if you’re able to secure a lower interest rate or extend your loan term. A lower monthly student loan payment can mean that you have more funds to cover the costs of buying or maintaining a new car.

Recommended: Guide to Student Loan Refunds

As mentioned, lowering your interest rate can save you money over the life of a loan. Extending your loan term may not save you money, but it can free up cash to have more funds to put toward the costs of a car.

Simplified Payments Can Make Tracking Car Expenses Easier

When you refinance multiple loans into a single new loan, you’ll have one new monthly payment. This can make it easier to keep track of your student loan payments and be sure you’re making them on time.

And if you’re looking for ways to get a car loan, having a simplified student loan payment can make budgeting easier as you add a new loan to the mix. As mentioned earlier, you may find lower interest rates on car loans than what you’re paying on your student loans — another reason using student loans funds toward car expenses may not be the best choice even if they’re allowed according to your loan terms.

Saving Money on Student Loans Can Help Pay for a Car

Many people explore refinancing even when they don’t need to make an immediate purchase like a car. That’s because refinancing may help save money over the life of the loan if you can lower your interest rate.

And while applying for student loans can be arduous, applying to refinance student loans is relatively straightforward. You can check your rate and get an estimate of loan terms before you officially apply, and an application can generally be completed online. You can also compare refinancing rates without triggering a hard credit check—a credit check is only done once a formal loan application is submitted.

Cons of Refinancing Student Loans to Buy a Car

While refinancing student loans to buy a car can be one way to cover car payments when you have existing student debt, there are cons to this option as well. Here are some of the cons of refinancing a student loan to buy a car.

Recommended: How To Save Up For a Car

Losing Access to Original Loan Terms

If you refinance your loans, you lose access to the terms of the original loan. This may be important to consider if you’re refinancing federal loans.

Refinancing federal loans not only means potentially missing out on federal forgiveness or repayment programs, but also the opportunity for deferment or forbearance if you qualify.

As mentioned earlier, if you plan to take advantage of federal programs, refinancing is likely not a good option for you. Some people may choose only to refinance private loans.

Repayment May Take Longer

If you extend the length of your student loan term when you refinance to lower your monthly payments to offset the costs of a new car, it will take longer to repay your loan and you may end up paying more in interest over the life of the loan.

Overstretching Your Budget

It’s important to make sure that you can afford any car loan that you take out. If you’re planning on getting a car loan or leasing a car, will you be able to comfortably cover your student loans, the car payment, and other bills? What would happen if you were to lose a job or source of income? Those questions can help you assess whether a car payment would stretch you financially.

A borrower who can’t make the payments risks having the car repossessed and damaging their credit. If you ever think you’ll miss a monthly car payment, reach out to your lender to find out what your options are. Down the road, refinancing your car loan is also an option if you’re able to secure better terms.

Recommended: Passive Income Ideas

Refinancing Your Student Loans With SoFi

When you need a new car, you may need to rethink your finances in order to cover the costs. Refinancing student loans to buy a car is one option that can help you free up funds. You may be able to lower your monthly payments and save money over the life of the loan if you qualify for a lower interest rate. You can calculate your potential savings using a student loan refinance calculator.

Refinancing can be a good option if you’re able to qualify for a lower interest rate and are not planning to use any federal programs. When you refinance a federal loan, you lose access to federal benefits and protections.

If you’re considering refinancing your student loans, SoFi offers flexible terms, competitive rates, and no fees.

Learn more about whether refinancing student loans with SoFi is right for you.

FAQ

Do car dealerships look at student loans?

Your student loans appear on your credit report. If you apply for a car loan from a dealership, then they may be able to see your payment history and your credit score on your credit report. Student loans also count toward your debt-to-income ratio which may affect your ability to secure a car loan.

Does financing a car affect student loans?

Financing a car won’t affect your current student loans, but consider how taking on another loan will impact your finances. It’s important to be certain that you’ll be able to pay both your student loan payments and any new car loan payments on time. Refinancing a student loan can help offset the costs of a new car if you can save money by qualifying for a lower interest rate. It can be a good option if you’re refinancing private loans or not planning to take advantage of any federal programs.

Is it smart to buy a car after college?

Buying a car after college is a personal decision. But keep in mind that a lot can change in a few years, and a new car or a lease may be a liability if your plans change. It may make sense to consider buying a used car or holding off on buying a car until you have a sense of what your commute and lifestyle will look like.

Photo credit: iStock/LeoPatrizi

SoFi Student Loan Refinance
Terms and conditions apply. SoFi Refinance Student Loans are private loans. When you refinance federal loans with a SoFi loan, YOU FORFEIT YOUR ELIGIBILITY FOR ALL FEDERAL LOAN BENEFITS, including all flexible federal repayment and forgiveness options that are or may become available to federal student loan borrowers including, but not limited to: Public Service Loan Forgiveness (PSLF), Income-Based Repayment, Income-Contingent Repayment, extended repayment plans, PAYE or SAVE. Lowest rates reserved for the most creditworthy borrowers. Learn more at SoFi.com/eligibility. SoFi Refinance Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.