If you’re in search of ways to finance your college education, private student loans could be the ideal solution. But before applying, it is essential that you understand how they operate and the associated pros and cons.
Private student loans differ from federal student loans in that they are credit-based and depend on your creditworthiness to determine eligibility. As such, private loans may be more accessible for borrowers with good credit or who have a cosigner.
Cost of Attendance
If you’re trying to finance college expenses, private loans may be an option. But it is important that you carefully weigh their benefits before making a final decision.
Tuition and fees are the largest component of college costs, followed by room and board, books/supplies, transportation, and other costs. If your credit score is good or if you have a cosigner who does, a private loan could be an effective way to cover any gaps between what you already have and what is needed for school.
Cost of attendance is a number calculated by the financial aid office at a college or university that represents the estimated amount you must pay to cover classes for one academic year. Schools are required to post this data on their websites, and it will appear on your award letter once approved by the financial aid office.
Your COA (Computational Opportunity Assessment) is a formula used by financial aid offices to calculate how much assistance you are eligible for in grants, work-study and federal student loans. The amount received depends on both your expected family contribution (EFC) and the COA at the school where you attend classes.
Interest Rates
When it comes to financing college, you have several loan options available. Federal loans are the most popular choice, but private loans may also be an option if other forms of financial aid aren’t enough for you.
Interest rates on student loans are an important consideration when selecting which loan best fits your needs. The federal interest rate on both subsidized and unsubsidized loans is fixed annually on July 1 and adjusted thereafter.
Interest rates on private loans can vary significantly based on your credit history and that of any cosigners. For instance, those with a parent as a cosigner often qualify for lower interest rates than if applying independently.
When searching for a competitive interest rate on your private student loan, compare offers from several lenders and see which ones offer the most appealing terms. Many banks, credit unions and online companies provide preapproved offers which aren’t guaranteed but give you an estimate of what you might pay in interest over time.
Eligibility
If you need to borrow for college but are ineligible for federal student loans, private lenders may offer non-federal loan alternatives. While these may be a viable way to cover the gap between financial aid and the cost of your education, be sure to carefully weigh their advantages and drawbacks before making a final decision.
Private loans differ from federal loans in that they are credit-based, meaning your eligibility and terms will depend on your credit history. Additionally, having a cosigner who has good credit may improve your application and increase the chances of approval.
If you’re uncertain about your private loan eligibility, getting prequalified by checking with a lender before applying can help. Doing so allows you to determine how much money is available and select a repayment plan that fits within your budget. Furthermore, this helps prevent an adverse impact on your credit report from an inquiry.
Application
Before applying for a private student loan, make sure you read all the lender’s terms and conditions carefully. These may include fees, interest rates and repayment options that vary by lender.
Some lenders may require borrowers to have their student loan payments automatically deposited into their bank account. Electronic billing may also be mandatory.
Private loans can provide students with financial aid if they do not meet the eligibility requirements for federal loans, or their federal loans don’t cover all the costs of attending school. However, these aren’t a replacement for federal loans.
