Private Student Loans

A Private Student Loan is a type of student debt issued by a private lender, such as a bank or credit union, rather than the federal government. Private student loans can be used to pay for college costs, including tuition, fees, room and board. Private student loans often come with lower interest rates than federal student loans. Private loans can also be repaid with income-driven repayment options for eligible borrowers. Most private student loans require a cosigner, an adult with good credit and stable income who agrees to take responsibility for the loan if the borrower is unable to make payments. However, some lenders, such as Ascent, offer non-cosigned loans for undergraduate, graduate, and DACA students.

Private student loans typically have variable interest rates and can be repaid over the course of five, eight, 10, or 15 years. Accrued interest may be capitalized (added to the principal) when the loan status changes, such as when borrowers graduate or drop below half-time enrollment. Private student loans don’t generally have the same benefits as subsidized federal student loans, such as loan forgiveness for certain occupations or public service.

How to Apply for a Private Student Loan?

To apply for a private student loan, you must fill out an application with the lender of your choice. You will usually be asked to provide some basic information, including your school, cost of attendance, and a financial aid award letter from your college. You may also be asked to provide credit history, income, and other personal information. Some lenders will allow students with limited credit to add a cosigner with excellent credit to increase their chances of approval and/or a better interest rate.

Many private lenders have flexible repayment plans; some offer perks like a grace period or reduced principal after graduation. They may also offer borrower protections, such as deferment and forbearance. However, they generally do not offer the income-driven repayment options available with federal loans.

Once your private student loan has been disbursed to your school, you will receive a notification from your lender. It can take a few days for your school to receive the funds. If you applied for a loan to cover two terms, your lender will often send half of the money in the fall and the other half in spring.

Private Student Loans for Bad Credit

Unlike federal student loans, which don’t require credit checks and have flexible repayment terms, private lenders usually check your credit history when applying for private student loans. This can impact approval, interest rates, and terms. You may also be able to apply with a cosigner, which can help increase your chances of approval and qualify you for lower interest rates.

Many private student loan lenders offer discounts on interest rates for borrowers who agree to have their payments automatically deducted from their bank account or set up via automatic bill pay. Additionally, some lenders waive application, origination, and guarantee fees for borrowers who make 12 on-time principal and interest payments.

If you have bad credit, consider working on repairing your credit before seeking a private student loan. Also, be sure to explore alternative student loans with less-stringent credit requirements. These include online marketplace lenders, and student loan refinance companies. You may also be able to find private student loans through your state government or university. In addition, some lenders offer income-share agreements that allow you to pay back your loan based on your earnings.

Private Student Loans Without Cosigner

Most private student loans require a cosigner, especially for undergraduates. This is because lenders evaluate borrowers based on their creditworthiness and typically want to see a score above the mid-600s in order to qualify for a good interest rate. The cosigner is responsible for paying back the loan if the borrower misses payments or goes bankrupt. Cosigners should review their credit scores frequently to ensure they are above the minimum required score. However, some lenders are bucking the trend and allowing students to apply without a cosigner. Earnest, for example, allows some full-time undergraduates, graduate, and DACA students to borrow without a cosigner if they meet certain credit requirements.

Students should compare lender requirements and decide which loan best fits them. They should also carefully read the terms and conditions of their private student loan to understand what they are agreeing to. In addition, they should also research their options for repayment. For example, some lenders offer deferment periods and grace periods, while others require immediate repayment once borrowers leave school.

Interest Rates

Private student loan interest rates vary by lender and borrower, with some offering fixed rates lower than federal student loans. The borrower’s or cosigner’s credit history, income, and other factors also determine the rate offered. It’s important to shop multiple lenders to find the best student loan rates. When comparing rates, pay attention to the total annual percentage rate (APR), which includes interest and other fees such as application, origination, late payment, and return payment fees.

Because interest rates are higher on private student loans than on federal student loans, it’s generally a good idea to max out federal financial aid options before taking on additional debt. Federal loans typically have lower rates and may be eligible for income-driven repayment options or debt forgiveness opportunities not available with private student loans.