Private loans are similar to federal loans in the fact that they can be used to pay for school expenses. Taking out a student loan means that you will be responsible for paying back the amount of money borrowed after your grace period—typically 6 months after graduation or dropping out of school.
Unlike a federal loan, a private student loan is not backed by the government. Instead, this type of college loan is backed by a bank, credit union, or online lender. Federal loans generally have better terms, repayment plans, and do not require a credit check, but there is a limit to how much money you can borrow toward your degree.
Private student loans help fill in the gap so that you aren’t stuck to foot the bill if your federal-issued financial package isn’t enough. Many students are able to secure financial aid and federal loans during their undergrad degree, but financing becomes harder to receive for advanced degrees. This is where private student loans really shine. They are the additional financing option available so you can finish your degree and advance your career.
What to Consider When Looking for a Private Student Loan
When considering a private student loan you’ll want to look at a lot of the same parameters that you would when searching for a personal loan.
Check if the loan includes a fixed or variable interest rate, and if it makes more sense to you financially to take out a longer loan term with higher interest rates, or a shorter term with lower interest but higher monthly payments.
Private student loans can be less forgiving than federal loans, They may not allow you to postpone repayment until after you graduate or allow you to halt your repayment schedule if you become unemployed.
Look at your monthly budget and determine how much you write off each month towards paying off the loan, and if you run the risk of defaulting. Determine for yourself if it makes more sense to take out a loan that requires only interest-only payments while you’re in school, if you’d rather make full monthly payments right away, or if you’d rather be able to defer your payments until after graduation
Also make sure to check what type of fees the company charges for the loan, and what type of customer service options are available.
How to Apply for a Private Student Loan
One of your first steps when applying for any loan should be to take a look at your credit score to see what type of shape it is in. Private student loans typically require a higher credit score, so if yours is fairly low or you don’t have much credit history, then you may need to find a cosigner for your loan. Look for someone in your family who has a good credit history, which should help you when applying for the loan.
You’ll also need to get a good amount of paperwork together for the application, including identification like:
Your Social Security number
- Your date of birth, address and identifying details
- Pay stubs
- Proof of assets
- Monthly rent or mortgage receipts
- Any other information that lays out your financial status
You will also need to fill out the Private Education Loan Applicant Self-Certification form, which is provided by your school and will show the lender exactly what costs you face for your education.
Try to get an idea of how much money you want to borrow as well. Do you want just enough to pay for tuition or would you also like some funding to pay for housing and other essentials? This will make a big difference in the size of the loan.
Finally, you will need to fill out a formal application for your private student loan with the lender of your choice.
For most people, going into debt is an unavoidable part of going to college or grad school. You may not be able to avoid borrowing funds, but you can certainly avoid making a bad decision. Before you apply for private student loans, always do a comparison shop and apply to the lenders that best meet your needs and preferences.