Private student loans serve as a means to fill the financial gap between federal financial aid and the actual cost of your college tuition. Prioritize exhausting financial aid from other sources, such as grants, scholarships, work-study, and federal loans. If there’s still a need for additional funds, considering private loans could be the next step in your college financing strategy.
Here’s what you need to know before getting started!
FEDERAL VS PRIVATE STUDENT LOANS
Federal student loans receive funding from the federal government, while private student loans are provided by lenders such as banks and credit unions. Additional distinctions between the two types of loans include:
- Overall Cost of the Loan. Private education loans tend to have a higher overall cost.
- Interest Rates. Private student loan interest rates may be higher than federal rates. Sometimes, private loans have variable interest rates that change over the life of the loan.
- Loan Repayment Terms. Private loans often come with less favorable repayment terms compared to federal student loans, which may offer income-based repayment plans and other benefits.
- Borrower Eligibility. For private student loans, your credit score may impact your eligibility, and you might need a cosigner. In contrast, most federal loans do not require a credit check or cosigner.
Make sure to explore all available government financial aid programs before considering private student loans. However, if federal loans fall short in covering your college expenses, a private loan could be a viable option.
Numerous banks, credit unions, and financial institutions provide private student loans. To find the best fit for you, it’s prudent to compare interest rates, terms, and conditions among a selection of top-rated lenders.
COMPARE THESE PRIVATE STUDENT LOAN LENDERS:
- Sallie Mae
- College Ave
APPLY FOR A LOAN
When exploring private student loans, it’s essential to consider that not all loans are alike, and different lenders may offer products, features, and terms that align better with your objectives. As you delve into potential lenders, here are some crucial factors to bear in mind:
- Your Eligibility. Assess whether you seek private student loans without cosigner requirements or if your credit history presents challenges. Some private loans may suit your needs more favorably based on your citizenship status, income, part-time or full-time student status, and other criteria.
- Loan Cost. Scrutinize factors such as the loan’s interest rate, interest type (fixed or variable), and associated fees. These elements contribute to the overall cost of your loan. For instance, be cautious when opting for a low, variable interest rate if you intend to repay the loan over an extended period. Variable rates can fluctuate with the market, resulting in higher payments than anticipated.
- Loan Features. Certain private loans offer advantageous features, such as cosigner release, deferment options in case of financial hardship, or early repayment opportunities. Additionally, many lenders provide auto-pay discounts, often reducing the interest rate by 0.25 or 0.50 percent. Compare multiple lenders to explore the various features available to you.
HOW TO APPLY FOR PRIVATE STUDENT LOANS
Prior to considering private student loans, it’s crucial to complete your FAFSA and make the most of any federal grants or loans you are eligible for. Additionally, don’t overlook the opportunity to apply for scholarships! If you find that you still require additional funds, then you can initiate the process of selecting a lender and applying for private student loans.
IF YOU’RE ELIGIBLE, HERE’S HOW TO GET A PRIVATE STUDENT LOAN:
- Get Ready to Apply. Generally, you can apply for private student loans online. To start, you’ll need to prove your basic eligibility – like citizenship and college enrollment status.
- Submit Documentation. You’ll need to provide your personal and financial information to your lender. Your lender may require documents like your Social Security number, a pay stub for proof of income or your monthly housing costs. They may also as for your school’s cost of attendance, the amount of financial aid you’ve already received, your cosigner’s details (if applicable), and other information.
- You’ll Receive a Decision. Your lender will need to process your application and analyze your financial and eligibility information, to let you know whether you’re approved. If you’ve applied for your private loan online, you may receive a result pretty quickly – sometimes in minutes! In other cases, a lender may need more information from you to move forward.
- Choose and Accept the Loan Terms. Once you’ve been approved for the loan, you’ll need to decide on your interest rate type (fixed or variable), loan term, and repayment plan. You and your cosigner (if you have one) will then sign the loan agreement.
- Wait for Disbursement. Your private student loans will be sent directly to your college or university. If you have borrowed more than your tuition actually costs, your school will generally refund the difference to you. You can return that money to your lender. Or you could use it to cover other college costs, like room, board, or your textbooks. It’s always best to borrow the minimum amount you need to cover your education related expenses.
PRIVATE STUDENT LOANS ARE AN IMPORTANT RESPONSIBILITY
Opting for private loans to finance your college education can make your academic journey possible. College opens doors to new career opportunities and a promising future. Nevertheless, it is crucial to be aware of the risks and responsibilities as a borrower. You must ensure that you are prepared to take out and eventually repay your private loans.
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