Some families turn to private education loans when the federal loans don't provide enough money or when they need more flexible repayment options. For example, a parent might want to defer repayment until the student graduates, an option that is not available from the government parent loan program. (Many PLUS loan providers are starting to allow parents to defer payments on the PLUS loan while the student is in school using an administrative forbearance. Interest continues to accrue, however.
Private eduation loans tend to cost more than the education loans offered by the federal government, but are less expensive than credit card debt. The federal education loans offer fixed interest rates that are lower than the variable rates offered by most private student loans. Federal education loans also offer better repayment and forgiveness options. Since federal education loans are less expensive than and offer better terms than private student loans, you should exhaust your eligibility for federal student loans before resorting to private student loans.
Private student loans typically have variable interest rates, with the interest rate pegged to an index, such as LIBOR or PRIME, plus a margin. The LIBOR index is the London Interbank Offered Rate and represents what it costs a lender to borrow money. The Prime Lending Rate is the interest rate lenders offer to their most creditworthy customers. A rate of LIBOR + 2.8% is roughly the same as PRIME + 0.0%. The spread between LIBOR and PRIME has been growing over time. So all else being equal, it is better to have an interest rate pegged to the LIBOR index, as such a rate will increase more slowly than a rate pegged to the PRIME index.
The interest rates and fees you pay on a private student loan are based on your credit score and the credit score of your cosigner, if any. Generally, if your credit score is less than 650 (FICO), you are unlikely to be approved for a private student loan. An increase of just 30 to 50 points in your credit score is often enough to get you better terms on your loan.
t is better to apply for a private student loan with a cosigner even if you could qualify for the loan on your own. Just applying with a cosigner usually results in a slightly lower rate, as such loans are not as risky for the lender. Moreover, the interest rates and fees are usually based on the higher of the two credit scores. So if your cosigner has a much better credit score than you, it could result in a much lower interest rate.
Private student loans may be used to pay for the EFC, the family's portion of college costs. While some lenders may offer private student loans in excess of the cost of attendance, any amount exceeding the difference between cost of attendance and financial aid is considered a resource. Like an outside scholarship, this will reduce need-based aid. (Some lenders offer non-school-certified private student loans to bypass this limitation by not informing the college about the loan. If the college becomes aware of the loan, federal regulations require the college to reduce need-based aid. Pending federal legislation would require lenders to tell colleges about all private student loans, eliminating this loophole.) This cost-of-attendance limitation only applies to education loans, which are loans that make enrollment in college a condition of the loan. It does not matter where the loan proceeds are sent (e.g., direct to the borrower vs to the school) or how the loans are marketed. On the other hand, mixed-use loans, such as home equity loans and credit cards, are not considered education loans and as such are not limited by cost-of-attendance.Lenders provide different types of private education loans depending on the student's level of study.
Flexibility is one of the key benefits of private student loans. Unexpected expenses can come up anytime during the semester. A Private student loans gives you the flexibility to apply whenever the need arises during your time as a student.Another important benefit - private loan eligibility is not restricted based on financial need. This simply means you can borrower what you need, up to the total cost of your education, in order to pay for additional expenses such as supplies, housing, transportation, etc.
Coverage and Versatility
Private student loans are a handy form of financial aid that can be used to cover expenses not met by federal financial aid. In addition to tuition and room and board, private student loans can be used to cover virtually any school related expense:
- Transportation and housing expenses
- Books, supplies, Lab fees and computers
Flexibility
Deadlines, deadlines, deadlines. It seems at every turn in financial aid, there's another deadline to watch. Also, additional expenses may creep up during the semester that weren't originally considered. Private student loans give you the flexibility to apply whenever the need arises during your time as a student. While federal loans may not disburse until a month into the semester, these private student loans can fund in a matter of days after receiving your completed application.E-Signature helps make it faster to apply and submit your application. To help speed up the process even more, we recommend having your social security number, co-signer and reference information available when you apply.
Simplicity
Scholarships and federal financial aid are restricted. Federal financial aid and federal student loans are based largely on demonstrated financial need (except for the PLUS loan), grade level, and student status. In some cases, federal financial aid may be very little help. Private Student Loans don't require lengthy applications or paperwork like the FAFSA. Most important, private student loans are not need-based, which means that eligibility is not confined to the neediest students.
Savings
- 0.25% repayment interest rate credit when payments are set up for automatic debit from a bank account
Private student loans are a great college financing option that can help cover additional costs not covered by federal financial aid. A private student loan can be used to pay for normal tuition expenses, but can also cover books, supplies, housing expenses, school fees, transportation, and more.
Unlike federal loans, private student loans do not require the FAFSA. However, a credit check for the primary borrower and a co-signer is needed to qualify. The interest rate is variable and based on Prime index plus a margin for borrower credit.
How are private student loan interest rates calculated?
Private student loan interest rates are calculated based on a published index such as the Prime Rate or LIBOR (London Inter Bank Offering Rate) plus a margin based on your credit score and credit history. If a cosigner is required, your interest rate will be determined based on your credit, and your cosigners' credit.Because the interest rate is variable, it will fluctuate over time. Interest begins accruing when the loan is disbursed.
hat will your private student loan interest rate be?.
It's not possible to determine your exact rate unless you apply for a private student loan. However, you can get a feel for where your general interest rate is based on your credit report. The more late payments, overdrawn accounts, and other credit issues there are, the more likely it is your interest rate will be higher.We always recommending checking your credit report and ensuring that it's free of errors, omissions, and inaccuracies before applying for any student loan so that you get the best interest rate possible. Check and improve your credit score here.
Some private student lenders offer discounts to borrowers for automatic debit or consecutive on-time payments. This can translate into significant savings over the course of repayment. The typical discount is 0.25% for signing up for automatic debit. It is recommended that you contact your lender for a full list of deferment options.Apply with a cosigner. Not only will you increase your chance of getting approved, but you can potentially lower your interest rate, depending on you and your co-signers credit.For more information about private student loans, check out our private loan comparison page, or simply get started and apply for a private student loan.
In order to be eligible for a private student loan, applicants must be enrolled at least half-time at an eligible school and typically meet the following requirements:
- Must be a U.S. citizen or permanent resident
- You and your cosigner must pass a credit check
What is Considered Good Credit?
It is recommended that you review your credit report before you apply for a private student loan. Creditors look at Personal data such as employment history, a summary of credit history, details of any accounts turned over to a credit agency, and your current FICO score. Get your FICO score now and improve your credit score.
Apply With a Cosigner
While not all private student loans require that you apply with a cosigner, having a credit worthy cosigner can increase your chances for approval and potentially give you a lower interest rate. Learn what it means to be a cosigner
When applying for a private student loan, one very important feature set to consider is the repayment options offered. Many borrowers are not aware of the different types of helpful budget friendly repayment plans offered through their lender.In most cases, lenders generally offer the same type of repayment options. These include full loan deferral, interest only repayment, or immediate interest and principle repayment.
Standard Private Student Loan Repayment Plans
Full Deferral:
No principal or interest payments are due while enrolled in school (up to four consecutive years). Payment of principal and interest will begin 6 months after graduation, or if enrollment drops below half time. Interest will continue to accrue during the deferment period and will be capitalized (added to the loan) at the time of repayment.
Interest Only:
Pay only accrued interest while enrolled in school (up to four consecutive years). Payment of principal and interest will begin either 45 days after graduation or if enrollment drops below half time.
Immediate Repayment:
Payment of principal and interest will begin immediately after the loan is fully disbursed.
Depending on the total amount borrowed, repayment terms for private student loans typically range from 10 - 25 years - The higher the loan amount, the longer the term.Private student loan consolidation is an option available to borrowers once they begin repaying their loans. Consolidation allows borrowers to refinance their loan, potentially secure a lower interest rate, and lengthen the term of repayment in order to lower monthly payments.Deferment options such as economic hardship, public service, unemployment, etc. may be offered to those borrowers who qualify. It is recommended that you contact your lender for a full list of deferment options.For more information about private student loans, check out our private loan comparison page, or simply get started and apply online.
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