When grants, scholarships, and federal aid aren’t enough, you can usually turn to private student loans. But just what are private loans for college and how are they different from subsidized and unsubsidized federal loans? Our guide will help you understand private student loans and how they match up with other financing options.
What are private student loans?
Private student loans are a form of financial aid that can be taken out for educational expenses. Unlike federal student loans, they do not feature flexible repayment terms. They are also funded by banks and credit unions as opposed to the government funding offered by federal student loans.
- Supplemental financing when federal student loan limits are maxed out
- Quicker application process
- Available funding for half-time enrollment students
- Fewer repayment options than federal student loans
- Do not qualify for government-sponsored public service or teacher loan forgiveness
- Most do not offer income-driven repayment plans
Because of the noted lack of flexibility, private student loans are usually only recommended if you have explored all other financing options. They can also be useful if you have borrowed the maximum amount from federal student loans.
Private student loans can be used to cover the cost of:
- Room and board
- Supplies and equipment (books, computers, etc.)
- Personal needs (groceries, clothing, etc.)
Where can I get private student loans?
Lots of lenders can help set you up with a private student loan. Here are just a few lenders to choose from when you’re shopping for a student loan:
Sallie Mae is a great choice if you’ve exhausted your federal student loan limits and you need more funding. They feature an upper loan limit of $200,000 and you can qualify for a discount on your interest rate when you sign up for automatic payments.
Credible is more of an online marketplace that makes it easy for borrowers to compare private student loan options. As a result, the loan limits will largely depend on the lenders that they feature. However, because of their position in the student financing world, they can help you finance almost any degree and find flexible repayment plans (which are already difficult to find with private student loans).
Ascent is a lender that cares just as much about educating the borrower as they do about providing funding. In addition to loan limits as high as $200,000, they also provide a wealth of information for less financially-literate borrowers. This gives you plenty of opportunity to know what you’re getting into when signing with them for a private student loan.
Where other lenders can be a little rigid, College Ave has been described as a far more flexible provider of private student loans. This is because they offer multiple repayment plans whereas other lenders might give you only one. Their upper loan limit isn’t too shabby, either, at $150,000.
Compared to other lenders, LendKey is one of the more helpful avenues for finding a private student loan. LendKey works with credit unions and small community banks all in an effort to find you the best rates. They also feature a longer period of forbearance and a shorter co-signer release period (one year/12 months). The maximum loan they offer is $175,000.
How do I shop for private student loans?
As with any other financing option, you want to shop around before you decide how you’re going to fund your education. Here are a few suggestions to help you shop for private student loans:
Get a list of lenders from your school
Most financial aid offices will be able to provide you with a list of lenders. This is a great place to start if you’re shopping for private student loans. You might also be able to schedule some one-on-one time with a financial aid adviser to review the lenders and consider other possibilities.
Make sure the lender is compatible with your school
While a lender might sound good on paper, not all of them will work with your school. Compatibility is important when you’re shopping for private student loans. Most lists of lenders will include this information, but your financial aid office can also help answer any questions.
Apply for the right loan for your education
Not all private student loans are created equal. Some might apply to undergraduate borrowers while others are for graduate students. The last thing you want to do is spend a lot of time researching a private student loan for continuing education only to find out it’s only eligible for undergrads.
In addition to these shopping tips, you should also be prepared to compare multiple private student loans. After all, you want to make sure you’re picking the best one for your particular situation. When shopping for private student loans, consider the following:
A lender’s reputation is just as important as yours when it comes to applying for a private student loan. Thankfully, there are lots of reputable third parties you can consider when you’re looking into a lender’s reputation. We recommend consulting the Better Business Bureau (BBB).
Interest is an important consideration since it can ultimately determine how long you spend paying off a private student loan. Compare interest rate ranges to make sure you’re getting one that works with your financial situation.
It would also be nice if you could choose between variable or fixed interest rates. A fixed interest rate is easier to budget for since it will remain consistent throughout the loan term. Variable interest rates are less predictable because they can change over time.
Some lenders offer specific benefits with their private student loans that should be taken into consideration when you’re shopping. Some might offer programs that make payments more manageable after graduation. Others might help lower your interest.
Impact on your credit
Taking out a large private student loan or enrolling for a particular policy might not reflect so kindly on your credit. You’ll want to make sure you review the lenders’ application processes to make sure you aren’t raising any red flags. A formal application generally requires a “hard” credit pull. Too many of those and you could see an adverse impact on your credit score.
How do I apply for private student loans?
Once you have done your homework and you are certain a private student loan is the best approach, you need to apply. Different lenders might have different requirements when it comes to applying for private student loans. You’ll want to review with your lender of choice for specific instructions.
Generally, you’ll want to make sure your credit is in good health (as well as the credit history of your co-signer). Oh yes, in most cases, you will need a co-signer and they will have varying levels of responsibility as well as varying windows of time that this shared responsibility lasts. You’ll also need to have information on your debt-to-income status as well as your employment history.
The bottom line
Private student loans can provide a decent source of funding for higher education when you’ve exhausted all other options. However, they are not to be taken lightly. Unlike most federal student loans, you might not have as much flexibility or forgiveness with private student loans. There are also additional hoops you’ll have to jump through in order to be eligible and apply. Make sure you do your homework and come with a full understanding before you sign on for any private student loans.