Private Student Loans

What happens when you have received your federal financial aid package and applied for more scholarships than you ever thought possible, and your cost of attendance has still not been met? Private student loans are a great college financing option that can help pay additional costs not covered by federal loans, grants and other forms of financial aid. In most cases, there is a substantial amount of unmet need and a private student loan is designed to provide supplemental funding to cover those needs. These private loans can be put toward any education-related expense including tuition, books, computers, transportation and room and board, and more.

Private Student Loans vs. Federal Loans

Private student loans differ from federal student loans in that the interest rates differ and the timing on repayments is usually different as well. Federal student loans have the lowest interest rates and repayments can be deferred while the student is attending school. Also, private student loan eligibility is based on credit history, so keep an eye on your credit. Having a credit-worthy cosigner will increase your chances of approval, and could even help you qualify for a lower interest rate. Also, while federal loans may not disburse until the semester is under way, you may be able to receive private loan funds within a week of your application.

Private Loans for Graduate Students and International Students

Private student loans can be helpful for graduate school students as well. Many lenders offer graduate loans designed specifically for the degree program that you may be enrolling in.

International students attending schools in the United States cannot apply for federal loans without a U.S. social security number. However, with a U.S. citizen as a cosigner, they may be able to apply for private loans. Also, American students studying abroad can only receive federal loans for tuition at schools affiliated with an American institution. Without that affiliation, there are still some lenders who will provide private loans for studying abroad.

Tips for Finding Private Student Loans

While shopping for a private student loan, it is important that you compare fees, interest rates and repayment terms and benefits. The appeal of a low interest rate can disappear quickly when high fees result in more overall additions to your loan total. Generally, 3% to 4% in fees is about equal to a 1% higher interest rate. Also, some lenders offer specific benefits and discounts during the repayment period such as interest rate and principle reductions. For example, most lenders allow a six-month grace period after graduation during job search. In other cases, if you set up automatic payments with a bank account (ACH), you can qualify for an interest rate reduction.

You may start researching and then applying for loans as early as the day you receive your acceptance letter from the school you plan to attend. However, you can also apply for private student loans at any time during your college education. As with federal loans, you must re-apply for your student loans each academic year.

Take the time to compare your options, with both private and federal loans. Private student loans offer the largest variety in the form of borrower incentives. These can include co-signer release, graduation rewards, APR (annual percentage rate) reductions and more, depending on the lender.


Find student loan tips in our expert advice articles.