Private Student Loans

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Private Student Loans

As a general rule, students should only consider a private education loan if they have maxed out their federal lending options or don’t qualify for grants, work-study or other forms of student aid. Undergrads should also compare costs with the Federal PLUS Loan, which is usually much less expensive and has better repayment terms.

That said, private loans can help cover the difference between financial aid and the full cost of your education. With increasing education costs, the funds that many students receive from grants, scholarships, work-study and federal loans often don’t cover their entire financial need.

Since private loans aren’t government-guaranteed, credit guidelines apply in determining your eligibility for private loans. Take the time to research your private lending options, compare lender rates, terms and conditions, and review the information below to help you find a private loan that suits your needs:

  • The fees charged by some lenders can significantly increase the cost of the loan. A loan with a relatively low interest rate but high fees can ultimately cost more than a loan with a somewhat higher interest rate and no fees. A good rule of thumb is that 3% to 4% in fees is about the same as a 1% higher interest rate.
  • Be wary of comparing loans with different repayment terms according to APR, as a longer loan term reduces the APR despite increasing the total amount of interest paid.
  • It is not uncommon for private lenders to advertise a lower rate for the in-school and grace period, with
    a higher rate in effect when the loan enters repayment.
  • Private lenders only issue loans to students attending schools the lender has approved for
    educational loans.
  • Private lenders may use non-individual factors such as school graduation rate, type of school, program length and the cohort default rate to determine if the lender will make funds available to students of a given school. According to a 2009 study by the Government Accountability Office (GAO), lenders reported that the most important factors in deciding if a school will be eligible for private education loans include longer programs of study, higher graduation rates, and low default cohort rates.*

Visit the following lender sites to learn more about private education loans:

Sallie Mae
SunTrust Education Loans
Student Loans from Citi
Wells Fargo Student Loans

* http://www.gao.gov/products/GAO-10-86R