Private Student Loans Guide

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Student loans are a necessity for most college students. Tuition, living expenses, and other costs can add up, and since most students spend most of their time in class, getting a job isn’t always an option.

Enter private student loans. Private student loans are a form of financial aid that students can use to finance their education and living expenses.

Private student loans are student loans that are provided by banks, credit unions, and alternative lenders as opposed to the federal government.

Types of Private Student Loans

There are two main types of private student loans to choose from: variable and fixed-interest rate loans.

Fixed-Rate

Fixed-rate loans mean that your interest rate will stay the same for the entire term of your loan. Your payment will remain the same from month to month, making it easier to plan your spending around your loan payments.

Variable-Rate

Variable-rate loans, on the other hand, carry interest rates that fluctuate over time. Generally, these loans start out with lower interest rates which increase as you get closer to the end of your term. As a result, it can be difficult to predict your future payments.

Generally speaking, fixed-rate loans are better for most people as they are more predictable. Variable-rate loans may be preferable if you expect to be able to pay off the loan early so you can take advantage of low introductory interest rates.

Pros & Cons of Private Student Loans

There are several advantages offered by private student loans as well as a few downsides to consider. Let’s take a quick look at the pros and cons of private student loans.

Pros

The pros of private student loans include:

  • Can provide additional funding on top of federal student loans

  • Fast application processes

  • Offer funding for half-time students

  • Can have lower interest rates than federal loans

  • Can be used for nearly any education or living expenses while you are enrolled in college

Cons

The cons of private student loans include:

  • May not offer payment deferral

  • Do not qualify for federal loan forgiveness

  • Not subsidized

  • Have fewer repayment options than federal student loans

While private student loans do have a few disadvantages, the pros may outweigh the cons, depending on your financial needs.

How Much Do Private Student Loans Cost?

While the total cost of your loan depends on how much you need to borrow, there are a few factors that can help you determine how much a private student loan would cost.

Loan Limits

Private student loan limits vary from lender to lender.

Many lenders base loan limits on your school’s total cost of attendance. This includes tuition as well as living expenses, books, and other costs.

In general, you should expect to be able to borrow a maximum of between $100,000 to $200,000.

You may also be able to borrow more if you plan to pursue a graduate degree.

Interest Rate

Interest rates for private student loans depend entirely on the lender that you choose and your current financial status.

That being said, you can expect to see interest rates for private student loans to fall somewhere in the range of 4% to 13%. 

Fees

It’s also important to be aware of what fees your lender may charge you.

Common fees include:

  • Application fees

  • Late-payment fees

  • Origination fees

  • Prepayment fees

  • And more

Every lender has its own loan terms and conditions, so be sure to review your offer carefully before signing anything as fees can add up if you’re not careful.

Term

Your loan term is another factor that will be determined by your lender. However, you can expect the term for your private student loan to be between five and 15 years. Of course, the longer the loan term, the more you’ll pay in interest. So, if you can afford the higher monthly payments, a shorter term will help you save more money overall.

Qualifying for a Private Student Loan

To qualify for a private student loan, you’ll need to meet a few requirements, including:

  • You must be enrolled full-time or half-time in a degree program

  • You should aim to have a credit score of at least 650, though this requirement varies

  • You may also need a co-signer

You may also be asked to provide documents like pay stubs, tax returns, or bank statements in order to prove you earn enough money to make your loan payments.

Since private student loans are not federally regulated, you’ll have to check with your lender for specific requirements.

Where to Get Private Student Loans

There is no shortage of private student loan lenders to choose from, some of the most reputable include:

These are a few of the most popular private lenders on the market, but be sure to do your own research to find the lender that meets your needs.

Tips for Shopping for a Private Student Loan

Ready to start looking for a private student loan?

Make sure to keep these tips in mind to make shopping for the right private student loan as easy as possible.

Research & Compare

There is no one right option when it comes to choosing a lender. It’s important to consider what your needs are so that you can find the lender that meets them.

For example, some loans are only available for undergraduate students while others are intended for graduate students.

You may also be interested in avoiding certain fees, like a prepayment fee, for example.

As a general rule of thumb, try to find at least three to four lenders that meet your needs, then compare rates and terms between them to find the best option for you.

Prepare Your Documents

To apply for a private student loan, you’ll likely need the following documents:

  • Personal information, including phone number, address, and email address

  • Personal identification

  • Bank statements

  • Social Security Number

  • Employment history

  • Proof of financial need

  • Cost of attendance for your school

  • Expected graduation date

  • Degree program

  • And more

Check with your lender to see if there are any other documents you need to complete your application.

By gathering these documents in advance, you can complete the application process as quickly and easily as possible.

Apply

After gathering the necessary documents, it’s time to apply.

Take your time to fill out the application accurately in order to avoid any complications. Make sure to stay in contact with your lender in case you need to submit any additional documents after completing your application.

If you are approved, be sure to carefully review your offer to ensure you are happy with the terms and interest rate. If you are, you can sign your loan agreement and receive your funding.

Typical cost is

$337/Month

Monthly payments at 7.81% interest rate on a 10 year loan with a $28,000 balance