When federal student aid and scholarships are insufficient to meet your educational costs, private student loans might be an excellent way to bridge the financial gap. Private student loans, which are available from banks, credit unions, and online lenders, can supplement your higher education finance. In this post, we will look at some of the best private student loans available, as well as variables to consider when selecting a lender and borrowing recommendations.
What is a Private Student Loan?
Private student loans are what their title implies. They are loans that students take out to help pay for the cost of college. Unlike federal student loans that come from the federal government, private student loans come from private institutions, such as credit unions, banks, or even online lenders. They’re generally used to pay the amount left over after the federal student loans, grants, and scholarships have paid all they will pay. Applicants must also meet certain requirements to be eligible for a private student loan.
Factors to Consider When Choosing a Private Student Loan
Selecting the best private student loan requires careful consideration of several factors:
- Interest Rates: Compare interest rates offered by different lenders. Fixed rates provide stability, while variable rates may initially be lower but can fluctuate over time.
- Repayment Terms: Look for lenders offering flexible repayment terms that align with your financial situation. Longer terms may result in lower monthly payments but can lead to higher overall interest costs.
- Fees: Pay attention to any fees associated with the loan, such as origination fees or prepayment penalties. The best lenders often have minimal fees.
- Loan Limits: Check the maximum loan amount a lender is willing to offer to ensure it covers your educational expenses.
- Cosigner Options: If you have limited credit history or income, explore lenders offering cosigner release options after demonstrating responsible repayment.
- Customer Service: Research customer reviews and ratings to gauge the quality of customer service provided by the lender.
Tips for Responsible Borrowing
Taking out private student loans is a significant financial decision. Here are some tips to borrow responsibly:
- Maximize Federal Aid: Before turning to private loans, exhaust all options for federal student aid, grants, and scholarships.
- Borrow Only What You Need: Borrow only the amount necessary to cover your educational expenses. Avoid borrowing more than required to prevent unnecessary debt.
- Read the Fine Print: Carefully review the loan agreement, terms, and conditions before signing. Understand the interest rates, repayment terms, and any potential fees.
- Consider Repayment Options: Look for lenders offering repayment flexibility, such as deferment, forbearance, or income-based plans, in case you face financial difficulties in the future.
» MORE: Student Loan Repayment
How do private student loans and federal student loans differ?
You apply for a federal student loan by submitting the FAFSA. Taking on a federal loan means you’re borrowing from the government. You apply for a private student loan through a bank, credit union or online lender.
Federal student loans only come with fixed interest rates — rates that are locked in for the life of the loan — that are set by Congress annually. Private lenders can offer fixed or variable rates that are based on your creditworthiness — and your co-signer’s if you have one. Federal loans also charge origination fees; private loans typically do not.
Borrowers of federal student loans get extra protections — like income-driven repayment and Public Service Loan Forgiveness — that private loans lack.
Top Private Student Loans
While the best private student loan varies depending on individual circumstances, here are some of the top lenders known for offering competitive rates, flexible terms, and excellent customer service:
- SoFi: SoFi is a leading online lender offering private student loans with no fees and competitive interest rates. They also provide additional benefits like career counseling and networking opportunities for borrowers.
- Discover Student Loans: Discover offers a variety of student loan options with competitive interest rates and repayment terms. They also have great customer service and provide rewards for good grades.
- Citizens Bank: Citizens Bank provides private student loans with options for both fixed and variable interest rates. They offer multi-year approval, allowing you to secure funding for multiple years of study.
- Sallie Mae: Sallie Mae is a well-known lender offering a range of private student loans with various repayment options to suit different financial needs.
- College Ave: College Ave offers customizable student loans with competitive rates and a user-friendly application process.
» MORE: Federal Student Student loans
Choosing the best private student loan requires thorough research and consideration of your individual financial circumstances. Compare interest rates, repayment terms, and benefits offered by different lenders to find the one that best fits your needs.
Remember to borrow responsibly, only taking out what is necessary, and exploring repayment options for a smoother financial journey. With the right private student loan, you can focus on your studies and pursue your higher education dreams with confidence
Q. How Do Private Student Loans Work?
Just like federal student loans, private student loans can help bridge the gap between grants, scholarships, and the price of college tuition. However, when you apply for student loans, whether or not you get the interest rate, loan term, and loan amount you need is completely dependent on your credit check.
Before you are approved for a private student loan, you are subjected to a credit check. The credit check will reveal your credit score, existing debt, and repayment history. With good credit, you’ll likely get a favorable interest rate and loan term.
Q. What do I need to apply for a private student loan?
For most student loans, you can apply online within a matter of minutes if you have the right documentation on hand. The information you might want to have at the ready includes:
- Contact info
- Date of birth
- Name of the school
- Social security number
- Your financial information, including a recent pay stub or other proof of income
- Proof of mortgage or rental payment amounts
- Contact info for your employer (if applicable)
- The financial aid award letter from the school you plan to attend
- The total cost of attendance
- Total financial aid offered
- Anticipated graduation date
- A personal reference
» MORE: Discover student loan
Note: If you’re applying with a cosigner, you’ll need the above info as it pertains to him or her as well.
Q: What are the different types of private student loans?
There are a few different private student loan types: undergraduate loans, graduate school loans (including law school and medical school loans), parent loans, and technical school loans.
Each loan type has different interest rates, minimum loan amounts, maximum loan limits, and loan terms. Loans for graduate programs like law school and medical school usually have higher maximum loan limits while loans for shorter programs tend to offer the lowest minimum loan amounts.
Q: Does it cost money to apply for a private student loan?
Some banks may charge an application fee. However, all application fees are waived if you apply through Nitro.
Q: What else do I need to think about when applying for private student loans?
Before applying for private student loans, be sure to fill out the Free Application for Federal Student Aid, otherwise known as FAFSA. Doing so will help determine your eligibility for federal grants and loans, as well as some scholarships. Accept all of your grant and scholarship money, followed by federal loans, before applying for private student loans. Then, use our free NitroScore tool to determine how much money you need to borrow before applying for loans.
Q: How long does it take to get approved for a student loan?
Most lenders will require certain kinds of documentation, including your (and your cosigner’s) social security number, address, and employment or income info. If you have your paperwork in hand, it should take about 15 minutes to go through the application process. Some banks may approve you within a few minutes. If you have to provide additional documentation, that process may take several days.
Q: What’s the difference between a federal student loan and a private student loan? Is one better than the other?
Federal student loans are issued by the government, while private loans are offered by a variety of sources, including credit unions, online lenders, and banks. Federal student loans typically feature lower interest rates than loans offered by private lenders.
It’s a good idea to utilize all federal loan money that’s offered to you before applying for private student loans, as federal loans are eligible for financial protections like loan forgiveness programs, forbearance, and income-based repayment plans.
Moreover, some federal student loans are subsidized, meaning that the government pays interest while you are still in school. Private student loans are typically unsubsidized loans, meaning that interest starts accruing right away.
Q: What are fixed-rate loans vs variable-rate loans?
The two types of private loan interest rates are fixed-rate and variable-rate. The interest rate on fixed-rate loans won’t change for the duration of your loan, while the interest rate on variable-rate loans can rise and fall with the market.
The perk of variable-rate loans is that their interest rates can start lower and remain lower than fixed-rate loans throughout the life of the loan. This is not a guarantee, however, as interest rates can also rise above those of fixed rate loans, increasing your monthly payment and overall loan amount.
Fixed interest rates are generally a safer bet for student loan borrowers, although finding a good deal on a variable rate might make sense if you’re only taking the loan for a short period of time, or if interest rates are expected to fall.