Private loans are offered through private agencies or lending institutions rather than the federal government (read: Direct PLUS vs. private loan options). The student is the borrower and an application must be made independently through a lender.
Almost without exception, dependent, undergraduate students do not have sufficient credit to qualify for a private loan without a credit-worthy cosigner. Adding a cosigner will increase the chances of approval and may reduce the interest rate of the loan.
Private loans are not federally guaranteed and do not require that you file the Free Application for Federal Student Aid (FAFSA). The yearly amount borrowed cannot exceed the annual cost of attendance minus other financial aid and resources.
Students who are U.S. citizens, permanent U.S. residents, international students (with an eligible U.S. citizen or permanent-resident co-signer), and, in some cases, non-matriculated students may be eligible.
Interest rates for private loans may be VARIABLE, which means rates will fluctuate for the life of the loan, or FIXED.
Variable rates: Most private lenders use Prime Rate (3.25% as of 5/1/12) or 1-month or 3-month LIBOR rate (London Interbank Offered Rate) as a base interest rate. The private lender then calculates an individualized loan interest rate range that includes an add-on percentage based on the creditworthiness of the student borrower and cosigner.
For example, if a private lender states that their loan interest rates range from Prime (3.25% as of 5/1/12) +2.0 to 9.0, a borrower applying for that loan might see their interest rate fluctuating between 5.25% to 12.25% over the life of the loan. The lender will determine your range following loan approval, but knowing the range before applying can help you make a decision.
Fixed rates: The interest rate you are given will not change over the life of the loan.