Private Student Loans – Answers to Your Questions

Looking at sticker prices of colleges these days, both public and private, can be a bit jolting – the schools appear to be crazy expensive! Grants, scholarships, and even private student loans are great ways to help pay for college, though it can be scary to think about going into debt at age 18. The truth is, most students in the United States graduate having taken out loans while in college. In fact, roughly one in four American adults have student loans, and the average student loan balance is over $37,000.

With loans being such a common phenomenon for college students in the U.S., it’s important to understand the different kinds of loans, how they work, and if taking out loans might be a good option for you. There is a lot of information out there, so we’ve compiled some helpful tips and answers to questions you might have (or didn’t even know to ask) about private student loans.

If you’re looking for a quick comparison of private student loans, you can find an overview of a several private student loan providers below.  Here, we’ll get into the nitty gritty details, and you’ll be prepped and ready to make a decision about your own private student loans.

Types of Student Loans

What is the difference between a federal and a private student loan?

Federal student loans are issued through the Department of Education, and are guaranteed by the federal government. Federal loans have interest rates that are set by the government each year, meaning your credit score has no bearing on the cost of your loans.

Private student loans, on the other hand, are provided by local banks, credit unions, and other types of lenders. If your financial aid package from the federal government and/or your college doesn’t quite meet your needs, a private student loan can help fill that gap.

It’s important to know that your job history and credit score, among other factors, will be considered in the approval process for a private loan. If you are approved for a private loan, these factors will impact your interest rate.

Which kind of loan is better for students?

First and foremost, it’s important to remember that grants and scholarships are free money that you can use to finance your education. There isn’t any accrued interest, and nothing to pay back. So it’s best to exhaust those options first.

Please understand that a better description than “free money” might be a “discount.” You see, your family is still the customer and, as the customer, you are paying for a service, in this case, a college education. That education comes at a price and, if you pay less than the “sticker price” for the education, then you are taking advantage of a discount. You are still paying for the service, you just pay a bit less than someone who did not receive that discount.

From there, you should consider the benefits of each kind of loan (federal and private), as well as the drawbacks. For example, federal student loans have a set interest rate, which is good if your credit or job history isn’t particularly strong.

Private student loans also have unique benefits. The interest accrued on private loans is tax-deductible, and there are often no prepayment penalties, meaning you won’t get charged extra to pay them off early.

You’ll have to decide which kind of loan, or maybe a combination of the two, would fit your financial and educational situation. Ultimately, the decision comes down to many personal factors.

Are private student loans bad?

Again, the best way to finance your education, including the kind of loans, is going to depend on your personal situation. Private student loans certainly have their downsides. Since they’re offered by private lenders, private loans don’t come with the guarantees and benefits of federal student loans. For example, an income-driven repayment plan isn’t available for private loans. And, if you run into a personal emergency where you cannot pay your monthly payment, you won’t be able to defer those payments in most cases.

Can students get private loans?

Absolutely. There are many lenders that offer private loans specifically for students, whether you’re an undergraduate or graduate student. As we discussed above, these lenders have a private student loan approval process that will take into account your credit history and income. If you find yourself in a situation where you might not qualify for a private student loan, consider using a cosigner. A cosigner is someone who will co-apply for your loan; if they have good credit, this can greatly increase your chances of getting approved.

Make sure you understand, though, that when someone has cosigned your loan, your payment history on that loan will also impact their credit score. So, that decision should not be taken lightly.

It’s important to compare offers from multiple private lenders. Loans with lower interest rates will cost you less in the long run. Just like when someone borrows money to buy a home, there are both fixed and variable interest rate options. A fixed rate stays… well… fixed throughout the life of the loan. A variable rate can fluctuate with interest rates or on a predetermined schedule.

Are Sallie Mae student loans federal or private?

Despite common the belief, Sallie Mae is a private lender, so their student loans are private. The money doesn’t come from the Department of Education, which is the only way a student loan can be classified as “federal.”

How can I pay for college without my parents help?

Grants and scholarships are the best way to do this, since this is money that you won’t have to pay back. In addition, if you have good credit on your own, you can apply for an independent private student loan and have it in your name. The challenge here isn’t just having established good credit at a young age, these loans are reserved for students attending top schools. The lender will evaluate your potential career trajectory based on how most students fare after graduation from your college or university.

How Much Money is Available?

How much can I borrow in student loans?

The answer to this question depends on your personal situation, and the rules of the private lender you choose. For example, at Citizens One, student loan amounts “can vary from $1,000 to $295,000 depending on the education level of the borrower.” Citizens One also offers a unique multi-year approval system, which “provides a simple way to secure funding for additional years in school. It’s easier on your credit in those future years and there’s less paperwork.”

Graduate school loans will often have higher maximum amounts, since graduate school is usually more expensive than an undergraduate education. Some lenders also have loans specifically made for students in professional programs, such as law, medicine, or business.

What is the maximum amount of student loans you can get?

Federal student loans are based on the financial need of you and your family. Applying for federal loans means filling out the Free Application for Federal Student Aid (FAFSA). This form is fairly comprehensive and requires you to know quite a bit about your family’s financial situations. You will also identify which colleges you will be sharing the FAFSA data with. Filling out the FAFSA takes about an hour to complete (if you have all the information ready to go), and there are guides to help you online.

If the amount of federal aid you’ve received is not enough to help you pay for college, you can turn to private student loans. The amount of money available through these kinds of loans wholly depends on the lender you choose and your personal situation.

How much money should I borrow?

It’s smart to limit the amount of money that you borrow in order to minimize the debt you have upon graduating college. By starting with grants and scholarships, as well as federal student loans, you can avoid high interest rates on a large amount of money borrowed. You’ll want to try and look ahead to what your loan repayment plan might look like to plan a secure financial future. Your monthly payments will be the total of your federal and private loans and the amount of each is dependent on the interest rate, length of loan and, of course, how much money you borrowed.

If your total monthly payments after graduation are projected to be more than 20 percent of your projected income, you might consider a less expensive education. If it gets too large, that monthly payment can really hinder your ability to develop your independence after college.

Can you take out a student loan for living expenses?

You can take out a student loan for living expenses if you need help making ends meet while enrolled in school. But, you want to make sure it’s worth borrowing that money, remembering that it will accrue interest and cost you more to pay back. If it fits your situation, you might consider getting a part-time or online job to help with your living expenses. Another option is to find a lower cost housing option, for instance, adding another roommate to the mix.

How can I get money for college without loans?

Once again, grants and scholarships are a great way to find money to help pay for college. They don’t require a cosigner, and you won’t have to pay that money back after you graduate. Merit based scholarships, which are awarded based on academic performance and extracurricular activities are a great benefit. Colleges also offer need-based scholarships, which take your family’s financial ability to pay into account.

The Student Loan Process

How do you qualify for student loans?

We discussed the eligibility for federal student loans in the section above, but it’s important to note that private student loans have a different process for approval. Every private student loan lender will have unique terms and conditions for its loans, which are subject to vary based on your eligibility, unlike federal student loans. Generally, the private student loan approval process depends on your credit score and job history, which show your ability to pay back the loan on time.

Can I get a student loan with no credit? Are there any student loans without a cosigner?

Federal student loans are based on financial need, and do not take into account your credit, and do not require a cosigner. So, if you have no credit, federal loans are the place to start.

As far as private student loans go, if you have no credit, you’ll need a cosigner to help you get approved for the loan. A cosigner for private student loans must meet criteria set forth by the private lender (usually needing to be a U.S. citizen, have a Social Security Number, and pass a credit check). If your loan is approved with a cosigner, that person will be equally obligated to repay the loan, and their credit score will be affected by the loan as well.

LendKey, like many other lenders, offers private student loans at lower rates if the borrower uses a cosigner with good credit. Check out their website to find out some benefits of starting repayment while you’re still in school, as well as a repayment calculator that lets you “plug in your remaining debt and monthly payment to figure out how much a student loan refinance can improve your finances.” With LendKey, you can customize your loan terms and type of interest rate.

Private student loans without cosigners are relatively rare, but you can find many private student loan lenders that offer an option for a cosigner release. This means that if you, as the student/primary borrower, make a number of on-time payments in a row and satisfy credit criteria of the lender, you may have the option to release your cosigner from the loan.

Can you be denied a federal student loan?

There are certain qualifications you must meet to be eligible for federal student loans. You have to have a GED certificate or high school diploma, be a U.S. citizen or a noncitizen with a Social Security number, and be enrolled in (or accepted to) an eligible degree or certificate program. Unlike private student loans, federal loans are based on financial need, and not credit score or income and employment history.

Understanding Private Student Loan Options

Which bank is best for student loans in 2019?

There are several big-name banks that offer private student loans.

Wells Fargo offers lowered costs for those who qualify for rate reductions, and has flexible repayment options. For example, repayment of Wells Fargo private student loans doesn’t begin until 6 months after you graduate or leave school. You can visit their website to find details about Wells Fargo private student loans, as well as some important financial aid checkpoints to remember when looking for help paying for school.

Discover offers private student loans that can cover up to 100% of school-certified college costs. Like with other lenders, you can choose between in-school or deferred repayment options. This bank also has a 1% cash reward on each new student loan for students with a GPA 3.0 or higher.

Since every student’s situation is unique, it would be inaccurate and unfair to name one bank the “best” for student loans. Instead, we recommend doing your research and choosing a lender based on the variables that matter most to you. Some important factors to consider include annual and/or cumulative loan limits, various fees that lenders charge, interest rates (variable or fixed), and how your credit history might affect any of these things.

Ascent Student Loans offers a “1% Cash Back Graduation Reward” upon satisfaction of certain terms and conditions on both their independent and co-signed private student loans. Ascent also has competitive interest rates and even an interest-rate reduction if you enroll in Auto Debit to repay your loans. Check out their website for some tips on paying for college with student loans.

What are the best private student loans?

Again, there isn’t necessarily one lender that offers the “best” private student loan. You’ll want to do your research and carefully consider each criterion in the approval process, the repayment plan, and more to see which private student loan will best fit your situation.

Here are some things to look for when searching for a private student loan that’s right for you: the loan has no application, origination, or late fees, the lender provides competitive interest rates, the loan could cover any education-related expense (books, computer, etc.), the loan can aid in building your credit, the loan has a cosigner release, and the lender provides flexible repayment options.

College Ave has a “Loan Calculator” on their website, where you can see the cost of a loan specific to your needs. To see if you’re eligible to borrow from College Ave, visit their site for an application that takes just three minutes to complete. Plus, you’ll get an immediate credit decision.

Is Sallie Mae the best student loan?

Sallie Mae is a well-known private student loan lender, and there are certainly benefits to choosing them as the provider for your loan. They offer the Smart Option Student Loan® for Undergraduate Students, which “offers a flexible way to bridge the funding gap between federal loans and the cost of your education,” as well as Specialized Graduate loans for those in medical, law, or business school.

With Sallie Mae, you can choose from various repayment options for your loans, including one which doesn’t require any payments while you’re in school.

While Sallie Mae does offer those specific benefits, the best loan provider for you depends on your personal factors and needs. So, we suggest you spend time doing research about different lenders and different kinds of loans, considering what you’re looking for in a loan, as well as what you can afford.

Various lenders differ in cost, repayment options, and processes for lending. For example, CommonBond offers undergraduate and graduate student loans with options for loan forbearance, a cosigner release, and no prepayment penalties. This lender is unique in that they have partnered with Pencils of Promise to provide “schools, teachers, and technology to thousands (and counting!) of young students in Ghana” for every degree fully-funded through CommonBond.

What’s Next Step in Finding a Private Student Loan?

It’s time to do your own research. If you think a private student loan might be right for you, check out different lenders and see what they can offer. The lenders mentioned in this article are a great place to start.