If you have exhausted all federal financial aid, grant and scholarship opportunities, and still find you need additional money for college, a private student loan may be the solution.
How do Private Student Loans Work?
Unlike federal loans, which require students to attend school at least part-time, a private loan can be used for any number of credit hours and students are not required to complete the Free Application for Federal Student Aid (FAFSA).
Keep in mind that students are not guaranteed approval for a private loan and must meet certain criteria.
Students will need the following when applying for a private student loan:
- Social Security Number
- Driver’s License
- Be a U.S. citizen, permanent or temporary resident alien
- Provide employment and income information (annual gross amount, contact information, etc)
- Provide contact information for his/her intended college
- Provide monthly housing/living expense information
- Co-signer (who must provide the same documentation)
Typically, students do not qualify for private college loans without a co-signer. In addition, any permanent or temporary resident alien applying for a loan will be required to have a co-signer, regardless of his/her credit history. According to the Boston Globe, nearly 90 percent of private loans issued have a co-signer.
Anyone with a good credit history may act as a co-signer, including family, friends and co-workers. Even if you do qualify for a private loan, you may want to add a co-signer to help reduce your interest rate. Many private loan lenders will allow a co-signer to be released from the loan once a total of 24 consecutive, on-time payments have been made. In some instances, lenders will also forgive the loan if the student beneficiary is deceased or becomes permanently disabled.
Always be sure to check with the lender about these provisions prior to having another party sign any loan documents or contracts.
Once the preliminary application has been processed, the lender will more than likely request a Self-Certification Form. The student will need to submit information on his/her tuition, room and board, fees and estimated financial aid being received.
The difference between what the student can expect to pay for college and what is being received through federal loans, scholarships and other aid is the amount available for the private loan. Lenders will also contact the college to verify this information, as well.
If you are approved for a private student loan, you can use the funds for any education-related expense. This can include not only those fees typically covered by federal loans, but also food, clothing, parking passes, travel abroad, testing fees, equipment purchases (computers) and even the occasional trip home during breaks.
While a private loan can offer more flexibility, keep in mind you may have a higher interest rate and fewer options if you find you cannot make your loan payments on time. Before deciding if a private student loan is right for you, compare offers by various institutions and read the fine print.