What is a Private Student Loan?

Considering a private student loan? Here’s what you need to know about fixed and variable interest rates, repayment options, and how to qualify.

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Introduction

A private student loan is a type of financing that you obtain from a private lender, such as a bank, credit union, or state agency. Private student loans are also sometimes called alternative student loans or non-federal student loans.

Unlike federal student loans, which are provided by the government and have many borrower protections and repayment options, private student loans are offered by private lenders and typically have fewer borrower protections and repayment options.

Before you decide to take out a private student loan, you should always max out your federal student loan eligibility first. You can get more information about federal student loans in our Federal Student Loan 101 guide.

What is a Private Student Loan?

A private student loan is a non-federal loan made by a lender such as a bank, credit union, state agency, or school. Private student loans may have lower interest rates and more flexible repayment terms than federal loans. You may want to consider a private student loan if you have already maxed out your federal student loan options and still need help paying for school.

A private student loan can help you pay for tuition, room and board, books and supplies, and other educational expenses. The interest rate on a private student loan is determined by the lender, and may be fixed or variable. Private student loans typically have a shorter repayment period than federal loans, so you’ll need to start repaying your debt sooner. You may also be responsible for paying origination fees and other charges associated with taking out a private student loan.

How to Apply for a Private Student Loan

Private student loans are credit-based, which means your interest rate will be determined by your credit score and other factors. Some private lenders offer discounts if you sign up for autopay or make interest payments while you’re in school.

In order to apply for a private student loan, you will need to fill out a Free Application for Federal Student Aid (FAFSA®) form. You can get started on your FAFSA form as early as October 1 each year. After you have completed the FAFSA form, you will receive a Student Aid Report (SAR), which will list the types and amount of aid you are eligible to receive.

You can then compare the offers from different private lenders and choose the loan that best meets your needs. Once you have chosen a lender, you will need to complete a loan application and provide documentation of your income, assets and expenses.

Private student loans typically have a grace period of six months after you graduate or leave school before you need to begin making payments. Some lenders may offer deferment or forbearance options if you are having trouble making your payments.

Types of Private Student Loans

Private student loans are a way to finance your education with the help of a private lender, such as a bank, credit union, or state agency. Private student loans can be used to pay for school expenses not covered by federal loans, such as housing, books, and transportation. Private student loans typically have higher interest rates than federal student loans and may require a cosigner.

Interest Rates

The interest rate on a private student loan may be fixed or variable. A fixed interest rate means the interest rate will not change for the life of your loan. A variable interest rate means the interest rate may change over time, which could result in higher monthly payments.

Repayment Terms

Private student loans usually have a repayment term of 10 years, but some lenders offer terms as long as 20 or 25 years. You can choose the repayment term that works best for your budget.

With most private student loans, you’ll have the option to make interest-only payments while you’re in school and during your grace period. This can help keep your monthly payments low so you don’t have to worry about them while you’re focusing on school. You may also be able to choose from a variety of repayment plans after graduation, depending on your lender.

Pros and Cons of Private Student Loans

When it comes to financing your education, there are a few different loan options to consider. Federal student loans, private student loans, and parent PLUS loans are all viable options, each with its own set of pros and cons.

As you weigh your options, it’s important to keep in mind that private student loans should only be used as a last resort. If you have the option of taking out federal student loans, you should do so before turning to private lenders.

Privatestudent Loans: Private student loans are offered by banks, credit unions, and other private lenders. They are not backed by the federal government and typically have higher interest rates than federal loans. They also generally have fewer repayment options and borrower protections.

Pros:
-If you have excellent credit, you may be able to secure a lower interest rate on a private loan than you would on a federal loan.
-You may be able to get a private loan even if you have already maxed out your federal loan options.
-Private loans can sometimes be used to finance expenses that federal loans don’t cover, like study abroad programs or off-campus housing costs.

Cons:
-Private student loans usually have higher interest rates than federal student loans.
-They also often come with fewer repayment options, so it can be harder to stay on track with your payments if you hit financial bumps in the road.
-Borrower protections are not as robust on private student loans as they are on federal student loans. For example, if you die or become disabled, your lender may require that your co-signer repay the loan in full.

FAQs

A private student loan is a non-federal loan made by a lender such as a bank, credit union, state agency, or school. Private student loans are also referred to as alternative student loans. You should consider a private student loan if you have already maxed out your federal student loan options and you need additional funding to cover your education costs.

When looking for a private student loan, it is important to compare lenders and interest rates to ensure that you are getting the best deal possible. Private student loans typically have variable interest rates that can increase over time, so it is important to understand how the interest rate on your loan may affect your monthly payments.

You may also want to consider whether or not you will be able to qualify for a cosigner release on your loan. A cosigner release allows you to release your cosigner from responsibility for the loan after you have made a certain number of on-time payments. Not all lenders offer cosigner releases, so be sure to ask before you apply for a loan.

If you have questions about private student loans, please contact us and we will be happy to help!