What are Private Student Loans?

Private student loans are offered by private organizations such as banks, credit unions, private lenders, and other financial services companies.

Private Loans Can Be Used For

Private loans can only be used for educational expenses. Generally, you only want to take the amount you need to cover the cost of attending. These expenses may include:

• Tuition
• Fees
• Room and board
• Books
• Supplies
• Transportation
• Computer for school

Finding Private Student Loans

There are many options when it comes to private student loans. One thing to keep in mind is that not all private student loans are equal.

The lender sets the terms and conditions of these private loans, which can vary substantially. It’s important to find a legitimate and reputable lender.

Use the following to help:

1. Speak with your high school counselor about private lenders
2. Speak with the college and ask for a list of lenders
3. Call your current financial institution and ask
4. Ask people you trust for recommendations and do the research

Depending on what level of college you’re attending, there are different types of private loans. Make sure you’re asking based on your college level: undergraduate, graduate, medical, certification, and continuing education.

How to Apply for Private Student Loans

You can apply for private loans from each lender’s website.

First, calculate the money you’ll need to cover expenses. This is the amount you’ll want to borrow.

Generally, the application for private student loans includes:

• Your basic personal information and finances
• During the process, you may be asked to apply with a cosigner. If that is the case, you’ll need their personal and financial information to complete the application.
• You’ll then get to choose your loan’s interest rate and repayment option.

Lenders do not assess a fee to apply and you may want to steer clear of any that do.

How to Compare Private Student Loans

After researching different lenders, you’ll want to compare and determine which option is best for completing the full application.

Some questions to ask when choosing a private student loan:

• Who is the lender? Are they reputable and have been in business for some time?
• What is the interest rate range?
• Are there variable or fixed interest rates to choose from?
• Is there an application fee?
• Are there origination fees or any other fees?
• Is there an in-school repayment option?
• Are there ways to lower the interest rate?
• Will you be required to have a cosigner? And can a cosigner be released?
• Are there programs that let you make more manageable payments after graduation?
• Are there other benefits that make the lender more appealing?
• Is there an after-graduation or out-of-school repayment grace period?

Pros and Cons of Private Student Loans

All federal student loan interest paid and most private student loan interest paid may have tax benefits. However, there are rare cases where a private loan could be a viable alternative to a federal loan. This may occur if you:

• Are you a graduate or professional school student with a high certainty of job placement
• Have a very good credit score
• Can borrow at interest rates lower than current federal loan rates
• Are completely committed to finishing the degree program on time
• Have a specific plan to repay your loans within a few years of graduation
• Have already borrowed as much as you can under the Direct Loan programs

If you have all of the above characteristics, you may also want to consider private student loans.

Your situation may differ, so consult your school’s financial aid office for additional information and shop around with private student lenders to compare.

Advantages of Private Student Loans

Private loans offer a few advantages compared to federal loans.

Fills the financing gap: With federal loans, there’s a limit on how much you can borrow each academic school year.

For example, a dependent undergrad student can borrow no more than $5,500 in federally subsidized loans per year. This may not be enough to cover the cost of attending. Private loans, however, have larger limits that are set by private lenders.