With the constant price increases in tuition, textbooks, and room and board, now more than ever, paying for a college education can be a tough challenge. For students who do not qualify for federal student loans or for those that do and still need additional supplemental funds to cover other education related expenses, private student loans can be a good financing solution. Private student loans should be used only after exhausting all other forms of financing including financial aid, subsidized student loans, grants, and scholarships. Getting these student loans requires more effort because a credit check is needed for the primary borrower and usually a cosigner on the application is also a must. Having a person with good credit cosigning with you can be very beneficial because the loan approval process will be much easier since income and credit history are factors and they can also lower the interest rates on your loan. The interest rates on private student loans is based on the libor ate or the prime rate plus a borrower’s premium. The borrowing limits of these loans can be up to your cost of college tuition and can be applied to any education related expenditures. Unlike federal student loans, students can apply for private student loans any time during the school year.
Private Student Loans Overview
- May require FAFSA to determine borrowing limits
- Borrow up to cost of tuition
- Interest rate based on prime or libor rate plus a margin
- Funds are disbursed to the college
- Repayment starts after graduation
- Consolidation is possible
Private Student Loans Benefits
- Apply any time during the school year
- Approval of loans based on credit history and income instead of merit based like scholarships and grants
- Repayment discounts in the form of interest rate deduction for on time payments
How do i apply for a private student loan?
Before you apply, make sure to determine how much you can pay. Then apply via online or paper application through various lenders. Some of the more popular lenders include Wells Fargo, Sallie Mae, Citigroup, and Suntrust. Once you submit your application, the lender will notify you in about a week regarding loan approval. Then the loan money will be disbursed to your college.
What are the eligibility requirement for getting a private student loan?
- At least a half time student at an accredited college
- US citizen or permanent resident
- Valid social security number
- Pass credit check
How to lower your private student loan interest rate
The best way to save money on your private student loan is to apply with a good credit cosigner. In addition to improving your chances for a loan approval, you can most likely lower your interest rate depending on the credit of your cosigner. Just make sure that the person cosigning gets a credit report to make sure that there are no errors that will affect their credit score. Besides having a good credit cosigner, there are some private student loan lenders who offer discounts to students for signing up for automatic debit and also for making consecutive on time payments. These discounts adds up to some significant savings over the life of the loan repayment. Usually, the discount is a quarter of a percent for using automatic debit. For a complete list of benefits, we suggest contacting the lender.
Interest rate terms
- Annual Percentage Rate (APR) is the amount of interest that will accumulate on a yearly basis without factoring in compound interest.
- Annual Percentage Yield (APY) is the same interest rate measure as APR, but factors in compound interest. This is a better way to determine the amount you will actually repay in interest.
For more information on private student loans: