Private Student Loans
What are Private Student Loans?
Private student loans or “alternative student loans,” are non-federal student loan options used to cover college expenses. You can use private student loans to cover college expenses like tuition, books, housing, food, lab fees, travel, etc. Private student loans should only be considered once a student has maximized free money, like grants and scholarships, and federal loan options. The amount you can borrow in private loans each year is based on your school's cost of attendance minus any financial aid you have already received. A private loan lender may further restrict the amount you can borrow, based on your creditworthiness or other factors.
|Example: Dependent, Undergraduate Student
|School's cost of attendance
|Federal Stafford Loan
|Amount you can borrow in private loans
Student Bank Private Loan Guide
Both undergraduate and graduate students can use private student loans. However, graduate students are given much larger federal student loan limits, so private student loans are not often necessary.
Private student loans are credit-based loans; your interest rate and fees are determined by taking your creditworthiness into account. Since most undergraduate students have little or no credit history, the vast majority will need to use a co-signer in order to be approved. Interest rates on private student loans are predominantly variable, and are calculated based on an index such as the Prime Rate or LIBOR, plus a margin.
Benefits of Private College Loans
If you are attending a public or private 4-year school, private student loans may be a necessary option if you have already exhausted free money and federal student loans, but still have a gap in funding. Private college loans are meant to bridge the gap between your financial aid and the remaining amount that you need to cover your college expenses. Most private student loans don’t require full payments until after you graduate (or drop below half-time enrollment).
Getting Approved for Private Student Loans
The current economic conditions and difficult credit market have had an impact on student loan lenders. Lenders have tightened credit criteria, making it increasingly difficult for students to secure private student loans. Here are some basic tips for getting approved:
- Check with your school’s financial aid office to see if they have a list of suggested lenders.
Although you are not required to use a lender from this list, it can provide a starting point for your research. Your school’s financial aid office will have already researched the reputations and products of these lenders for you.
- Research private student loan lenders to find the loan benefits you need.
Private student loans are fairly standardized from lender to lender, but there are some different benefits that might be important to you. Research loan products for these options BEFORE you apply:
- Repayment plan options – make sure there are various payment plans available, just in case you have difficulties making your payments.
- Deferment/Forbearance – a “break” from making payments if you run into financial difficulties. Federal loans come with deferment and forbearance protections, but you’ll need to check for it on each private loan.
- Co-signer release program – if you make payments on-time and can independently meet the credit and eligibility criteria for the loan, it may be possible to request that your co-signer be removed from the loan. Each program varies, so you should check each lender’s requirements.
- Loan benefits – interest rate reductions or balance reductions never hurt if you feel you can meet the requirements to receive the benefit.
- Find a credit-worthy co-signer.
If you don’t have significant income or a developed credit history, you will need to find a credit-worthy co-signer to help you get approved. A co-signer can be anyone over 18 (or the age of majority in your state) who is willing to share the responsibility of the loan with you, like a friend, relative or parent. Lenders’ underwriting criteria has become more stringent, leading to about 90% of undergraduate loans requiring a qualified co-signer--- so chances are you are going to need one. If you are having a difficult time finding a co-signer, click for tips on finding a good co-signer .
- Check your rates and fees.
You won’t be able to see your rates and fees until after you and your co-signer complete the entire application process. Remember that lenders’ credit requirements and rate schedules can vary significantly. If you feel like your rates and fees are too high, you and your co-signer may want to shop around.