Private Student Loans Give You More Options

Hands by laptop and paperworkMany students today pay for their college or university education by assembling a package of aid that includes both federal and private funding sources. If it is necessary to get financial assistance for college, the goal is to access the federal aid first and the private funds last. But as higher education enrollments increase and put more pressure on federal student loan funds, private loans have become an important source of funding.

Private student loans are loans issued by a private financial institution like a bank or a credit union. They are not subsidized by the federal government and may have stricter eligibility requirements compared to educational institution loans. The banks offering private student loans lend the money to eligible students who are enrolled in a school the lender has approved.

Max Out Federal Loans First…

Private student loans are normally used as gap-fillers. The gap that is being filled is the difference between the total education expenses and the sum of all other aid including scholarships, federal and state grants, and work study income. The loans work like any other loan in that interest is charged and accumulated on the principal. The amount of interest and the repayment terms vary from lender to lender.

Before having private student loans sent to you, it is advisable to first complete the Free Application for Federal Student Aid (FAFSA) at the educational facility you plan on attending. This form is used to determine eligibility for a federal Stafford loan or a Perkins loan, work study money or grants. Students or their parents can also apply for a PLUS loan which is also now federally subsidized.

Even with the wealth of aid available, many students still find themselves coming up short of being able to pay for their college expenses. Since these are private student loans and families with high income to low income can apply, they often provide the money needed to pay for an education.

Never Make Assumptions about Eligibility…

Private lenders are offering hundreds of student loans with eligibility and terms determined by the lender. A good place to begin is with the large banks like Chase, Citi, Citizens Bank and Discover. But don’t forget to talk to the local banks in your home state too and especially if you or your family has an established banking relationship with any of them.

Naturally many students are looking for no credit private student loans. Students often don’t have a credit history making it difficult to obtain loans at some financial institutions. There are private student loans with no credit history required that are available, but most lenders do require a credit check or a co-signer if your credit history is poor or nonexistent.

The eligibility requirements for private student loans can vary widely. Most loans require the student to be enrolled half time to full time based on credit load. But there are private non credit based student loans available also so you should inquire at your local bank. Some private student loans are applicable to certified career and vocational schools in addition to colleges and universities bestowing 4-year and graduate degrees.

Find the Terms You Can Handle

The private student loan fixed rate is based on the Prime rate plus a percentage or the 1-month Libor rate plus a percentage. The percentages vary from lender to lender so it pays to shop around. In some cases there are step interest rates with one rate charged while the student is in school and another rate charged upon graduation. There are also loan fees tacked on which can significantly impact the finance amount repaid.

Private student loans for students with poor credit or no credit will carry the highest interest rates because they are considered to be riskier loans. This is also true for private student loans with no co signer unless you have a good credit history.

The maximum amount you are allowed to borrow in most cases is the total cost of the education less any other financial aid you receive. Repayment terms usually depend on the amount borrowed with 5 to 20 years allowed. Many have a grace period of 3 to 9 months before repayment must begin so you are not faced with a loan payment immediately upon graduation.

The good news for those who require co-signers is that some lenders will release them after you make a designated number of on-time payments.

Always Worth the Effort

If your financial aid does not cover the cost of your education then the private student loan may be the answer to your financial needs. As you can tell, there are many different types of student loans regardless of credit private lenders will consider. If you need to plug a financial gap when it comes to paying for your education, then it’s always worth the time and effort to apply for a private student loan.