Students may have many questions about the types of loans that could help pay college expenses. Private student loans may be available to those who qualify. Private loans may cover tuition, books, as well as room and board. Here are answers to common questions you may have about private student loans.
WHAT ARE PRIVATE STUDENT LOANS?
Private student loans are financial aid options not backed by the government. Non federal loans may be offered by institutions in the private sector. Some of these include banks, credit unions, and schools. Private loans may also be available through state agencies and through companies such as Sallie Mae.
A private student loan may be used to pay the full cost of tuition. You may also seek a private student loan to pay for remaining expenses which may not be covered by other financial options such as grants, scholarships or federal loans.
Private student loan options are credit based. Terms and conditions may vary based on the student loan lender. According to the U.S. Department of Education, private student loans may have higher costs than federal loans. Students and parents should consider exploring other financial aid options before looking into a student loan from a private company.
HOW DO I QUALIFY FOR PRIVATE STUDENT LOANS?
To qualify for private student loans, you typically need good credit and income or apply with a cosigner who does. Also, you must attend an eligible school, be a U.S. citizen and meet other lender’s criteria. The qualification process may vary between private student loan offerings. Generally, those offering these loans evaluate credit records of students or their cosigners. Remember, there may be companies that do not require you to have a traditional credit history.
Before applying, you should read each lender’s information to understand what paperwork, documents, and other requirements you may need to apply for a loan. After reviewing your creditworthiness and running a credit score check, the lender may provide an interest rate they feel you would qualify for. Remember, until the loan application is approved, and you have accepted, the rates you talked about with the lender may change.
Do I Need a Cosigner?
You may require a cosigner if you do not have your own credit history. In some cases, this may also be required if you have poor credit history. This may help you qualify easier and faster for a student loan if they have a strong credit history.
If the person helping you get a loan has a strong credit history, they may also help you get a more competitive interest rate. You may also qualify for a higher loan amount if they have good credit. A person helping you qualify for a loan may agree to share the responsibility for loan repayment if you cannot make payments on your own.
There are private student loans available which may not require a creditworthy cosigner. MPower, Ascent and Funding U are some of possible options.
What Are the Advantages of Private Loans?
Borrowing money for college may feel like a burden. Many students want to know if there are any benefits to taking out education loans. Some parents may feel when students are responsible for their own loans, they may learn valuable life skills. Some of these skills include smart money management and long term planning. Another benefit is when a student makes on time monthly loan payments on federal or private loans students they may be building credit. Building credit while going to school may be helpful to a student’s future. A strong credit history may help students who wish to consider buying a house or car after college.
Which Lenders Offer Private Student Loans?
Applying for a private loan online doesn’t take long, and you may often be able to see your result in a matter of minutes. Apply with one of our loan partners online:
- Looking for last minute money for college? Check out the Smart Option Student Loan by Sallie Mae. Sallie Mae offers three repayment options and competitive interest rates. These loans are designed to fit your financial needs.
- The Ascent Tuition Student Loan features affordable variable rates, flexible repayment options and no application fees. A creditworthy cosigner such as a parent or guardian are strongly recommended to increase your chance of approval.
- The College Ave Student Loan may help you get the money you need for college or graduate school with a fast application and instant credit decision.
| Why Choose This Lender? | Eligible Degrees | |
|---|---|---|
| Looking for last minute money for college? Check out the Smart Option Student Loan by Sallie Mae, which offers three repayment options and competitive interest rates to fit your financial needs. | Associate’s, Bachelor’s, Certificates, Career Training, Graduate Degrees, Medical, Dental, and Health Professions |
| With low rates, no origination fees, and multiple repayment options, U Fi Student Loans support the diverse needs of today’s student borrower. | Undergraduate, Graduate, Medical |
| The College Ave Student Loan could help you get the money you need for college or graduate school with a fast application and instant credit decision. | Undergraduate, Graduate, Professional |
| Ascent offers a wide range of private loans and offers loans which do not require a cosigner. Students who opt for automatic payment may also qualify for cash back with no application fees. | Undergraduate, Graduate, Professional |
| Citizens offers a multiyear approval and no origination fees. They offer low interest rates for both their student and parent loans. They have full or interest only payments while in school. Loan terms are 5, 10 or 15 years. | Undergraduate, Graduate, and Parent |
| Discover offers loans that may offer benefits based on grades of the student. In some cases, students may be offered a lower rate if they have good grades. | Undergraduate, Graduate, Law, Parent, and Professionals |
| Credit Union Student Choice offers students the opportunity to explore credit union loans offering private student loans by state. | Undergraduate, Graduate, Professional |
| Earnest offers a range of private student loans. Students may have lower payments than other private lenders and can set their own payment dates. | Undergraduate, Graduate, Professional |
| Offers competitive rates, an opportunity to work with a free Money Mentor and no prepayment fees. | Undergraduate, Graduate, Dental, MBA, Medical |
| Mpower Financing offers custom loans as well as scholarships for international students. This is a social benefit corporation and loans may be offered without a cosigner. | An undergraduate or graduate student within 2 years of graduating or about to begin a one or two year program. Students must be an international student, DACA recipient, a U.S. citizen, refugee, or asylum seeker |
Check out our video guide about private student loans:
HOW TO EVALUATE PRIVATE LOANS FOR STUDENTS
Evaluate schools and college that you may be interested in. Determine the loan amount you may require. You also want to think about the fees and loan conditions you may be willing to accept.
Then you may use tools such as our LoanFinder to evaluate interest rates, Annual Percentage Rates (APR), repayment terms, fees, and other loan details.
Write down the loan information and try to locate any benefits or disadvantages. Private companies who offer loans such as Sofi offers exclusive rate discounts to SoFi members who qualify. Sallie Mae may allow you to release a cosigner before your loan is fully repaid.
Terms and conditions may vary for each loan product and loan company. Carefully read the terms offered before deciding on a loan. If you expect to have a cosigner on your student loan, they may also want to evaluate the terms, conditions, and benefits with you before they agree to help you qualify for a student loan.
INTEREST RATES
Unlike federal loans, private student loans have interest rates that vary based on the borrower’s credit. In some cases, you may have the option to choose a fixed or variable interest rate. Fixed interest rates stay the same over the life of a loan. Variable rates often start out lower than fixed rates but fluctuate over the life of the loan. Your choice of one type of interest rate over another may depend on factors such as the length of your loan and whether it’s important to you to have a predictable monthly payment.
Another factor to consider is that some loans may offer a small interest rate reduction if the borrower agrees to automatic repayment. Receiving a 0.25% interest rate reduction is a common benefit for those who elect to have their student loan payments made directly from their bank account each month.
LIMITS ON WHAT YOU CAN BORROW
Many private student loans allow a student to borrow up to their school’s Cost of Attendance minus other financial aid, such as federal student loans. In some cases, the school’s cost of attendance may exceed the maximum loan amount offered by the lender. In other cases, a student may not qualify for the full loan amount requested. Private loans often have a minimum which may be borrowed. This minimum amount may be as low as $1,000 to $2,000.
LOAN FEES
Some loan companies may charge an origination fee. These fees are charged to you at the time your loan is paid to your school. Origination fees are calculated as a percentage of the amount you are borrowing. This fee will then be added to the total amount of your loan.
The good news is many private student loans do not charge an origination fee, though many federal loans do. Still, it’s important to read the fine print to make sure the private loan you are considering is free of fees.
HOW DO YOU REPAY PRIVATE STUDENT LOANS?
In some cases, you may have a number of choices for repayment of your loans. This gives you some flexibility in how you would like to repay what you borrowed. Borrowers may be able to pick the length of their repayment term. This could be important depending on how quickly you wish to pay back what you owe.
One feature of many private loans is the ability to completely postpone (defer) payment of principal and interest until you graduate from college. In some cases, lenders may allow you to defer loan payments while you are still in school. Lenders may offer six month grace period after you graduate or if you drop to half time enrollment. So you may not make full payments on your school loan until the grace period ends. In other cases, lenders may ask you to make a small, flat monthly payment while you are in school. You should ask about all options when you speak with a loan officer.
You may be offered the option to make interest only payments while you are in college. This allows you to save money over the life of your loan. Some lenders may allow you to begin making full payments on both your principal and interest while you are still in college.
This could lead to larger cost savings in the long run.
Another way to pay your education loans is to set up autopay. In some cases, your lender may offer you incentives if you use autopay. These may include cash back incentives or they may offer you a lower interest rate on your balance.
Remember, interest accrues on your student loans monthly. This means the amount of interest you are charged is based on your outstanding balance. Keep in mind that not every lender offers all these repayment options. It is important to do your homework to find the student loans that fit your long term plans.
HOW LONG COULD IT TAKE TO PAY BACK MY PRIVATE LOAN?
That depends on the loan program you selected, how much you borrow, and the repayment plan you choose. Repayment terms may range between 5 and 15 years. Remember, every loan is different so some loan terms may be shorter or longer. There are usually no penalties for making extra payments (known as prepayment penalties) or paying extra on your loan each month.
CAN YOU REFINANCE PRIVATE STUDENT LOANS?
Yes. Student loans may be eligible for refinancing. This option may be available if you have improved your credit score, if you have steady income, and if you have do not have a high amount of other debt.
Refinancing is also a great option if you have a loan that is a shorter or longer term than you want. You may be able to get a shorter (or longer) term by refinancing. Refinancing a private student loan may also be a good option if interest rates go down. Borrowers may be able to lower their monthly payments and get a lower rate by refinancing their education loans.
WHAT OPTIONS DO I HAVE IF I CANNOT REFINANCE?
Some of the options you may have if you are unable to refinance your student loans include improving your credit score. This factor may help you qualify for refinancing at a later date. Getting a better job, taking on a second job, or asking a trusted friend or family member to consider being a cosigner may also be an option. Some lenders may offer you the ability to consolidate student loans.
For some students, talking to their lender about deferments or forbearance of a loan may be helpful. You may also want to ask about repaying your loan based on your income. Some students may qualify for a loan forgiveness program if they have a federal student loan.
CAN YOU CONSOLIDATE PRIVATE STUDENT LOANS?
Loan consolidation means you are combining multiple loans into one loan. This gives you the option of being able to make one monthly payment on one loan instead of multiple payments on different loans. It is important to understand what this means for your loan.
First you should understand consolidation is different from refinancing. Refinancing usually involves only one loan. Consolidation may involve two or more loans which are being put together and changing your total loan amount to the balance of those loans.
Consolidating your loans may mean it could take you longer to pay off. This may mean you are paying more for the single loan than you would pay over the life of smaller loans. Make sure you carefully evaluate this option before you agree to consolidate.
If you are able to consolidate your loan and get a lower interest rate it may help offset the amount you pay off over time. Be careful to review all loan documents before accepting a consolidation loan. Understanding the pros and cons is important when consolidating.
WHAT HAPPENS TO STUDENT LOANS WHEN A BORROWER DIES?
When a borrower has debt and dies, their estate becomes responsible for their debt. This is the case with student loans. When an estate is probated, assets are liquidated to repay their debt. In some cases, a lender may forgive a loan for a borrower who has died. But the administrator or executor of the estate would have to request this from the lender.
ARE THERE ALTERNATIVES TO PRIVATE STUDENT LOANS?
In addition to federal financial aid, scholarships, grants, and your savings, private student loans may be one additional way to pay for college. Private loans for students usually offer better terms than credit cards. Credit cards tend to have high interest rates and offer less flexible repayment options.
Between scholarships, grants, work study, your family and own savings are other alternatives to help pay for college you may be able to avoid borrowing more money. You may need to fill out the FAFSA to show unmet financial need. Data released by Sallie Mae shows eight in ten families (83%) indicate they are paying more towards their student’s education. This is in spite of the fact education costs are rising as of 2017 to 2018 according to the NCES.
Another possible option is a federal Direct PLUS Loan for Parents, in which the parent – not the student – is responsible for the loan repayment. There are pros and cons to Direct PLUS Loans. Parents who prefer their children be responsible for the cost of education may decide a private loan is the best option.
Direct PLUS Loans often offer reasonable interest rates and origination fees. In many cases federal loans offer less expensive terms than private educational loans. Students may qualify for private loans that are more competitive than Direct PLUS Loans.
COMPARE PRIVATE LOANS BEFORE BORROWING
A private education loan could be an attractive and affordable option to help pay for education expenses. However, it is also a big responsibility. Students should first consider federal financial aid and other less costly ways of paying for school. You should borrow only what you need for college expenses. Be sure to compare lenders before borrowing, to increase the chance of finding the loan that makes sense for you.
Remember to carefully evaluate private student loan rates before you decide which loan is right for your needs. When you apply for any student loans, make sure you know what terms you have to meet and keep your payments up to date. On time payments may help you improve your credit score which may give you more options in the future.