Important Steps Before Applying for a Private Student Loan

Important Steps Before Applying for a Private Student Loan

BIG Ideas:

  • You may need a private loan to help bridge the gap between financial aid, savings and the cost of college.
  • Unlike need-based federal student loans, private loans are based on your creditworthiness and income.
  • Before applying for a private loan, calculate how much you need to borrow, decide if you need a co-signer, understand repayment terms, and compare lenders, rates, and fees.

It’s fun to receive money. Owing money? Not so much. But, if you plan on going to college, there’s a pretty good chance you’ll end up getting loans to help pay for it.

Sure, you may have some college savings, parents willing to help, and financial aid (scholarships, grants, and federal loans) that can make college more affordable. But given the high cost of college today, there’s likely to be a gap between all that and the cost of attendance.

That’s where private loans can be a huge help.

As the name implies, private loans are loans offered by private lenders, such as banks, credit unions, and non-profit organizations (like Brazos) to help students and parents make up the difference where financial aid and savings leave off.

Important Things to Know About Private Loans

If you think a private loan could help you, it’s critical to understand how they differ from federal student loans.

  • Unlike federal loans that are based on need, private loans are based on your credit and income.
  • Private loans are not one size fits all. So, rates, fees, borrowing amounts, and even repayment terms can vary significantly by private lender and by your creditworthiness.

For these reasons, it’s important to exhaust all forms of federal aid, such as scholarships, grants, and federal loans BEFORE applying for a private student loan.

Steps to Take to Get a Private Student Loan

If you’ve maxed out financial aid and savings and have a gap, you’ll need a private loan.  Here are some pointers to help you get ready before you apply:

  • Solve for X – how much you can borrow. When you complete the Free Application for Federal Student Aid (FAFSA) and list schools that interest you, those schools will make financial aid offers. In addition to knowing how much you’ll get in financial aid, you’ll need to consider any savings you may have, such as a 529 college plan or any other money you can apply toward college costs. Once you add up your financial aid and savings, you can subtract that amount from the cost of school attendance (tuition, room and board, and other fees) to determine the amount you’ll need to borrow for your private student loan.
  • Decide if you need a co-signer. The amount you qualify for, though, will depend on your credit score and income. If you don’t have solid credit or income, you’ll need to choose a co-signer, such as a parent, guardian, or other relative who agrees to share responsibility for the loan with you. Be sure to select someone you trust who has good credit and steady income.
  • Pick a private lender. Rates, terms, and fees can vary significantly from lender to lender so make sure you shop around and compare different interest rate quotes. A private lender can prequalify you to help you determine how much you could borrow, the interest rate, the term, and the amount of your payments.
  • Understand your repayment options. When you choose a private student loan, you also get to choose your repayment term, which is how you will pay the money back. Check with your lender, but common options include:
    • Immediate repayment. You pay principal and interest as soon as the funds are disbursed (so while you are still in school).
    • Interest-only payments. With this option, you pay interest only while still in school.
    • Deferred payments. You can choose to delay payments of principal and interest until 6 months after graduation. Keep in mind that interest will accrue while you’re in school and will capitalize upon repayment, so you’ll end up paying more. Learn more about repayment options.
  • Gather your documents. Once you’ve completed the steps above, it’s time to apply. As part of that process, you’ll have to gather information for you and your co-signer (if you have one). These include:
    • Government-issued ID(s)
    • Proof of income, such as pay stubs or tax returns
    • Bank statements
    • Proof of school enrollment
    • College cost estimate
    • Your financial aid award letter 

An informed borrower is a wise, money-saving borrower. So, if you need a private student loan, it pays to do your homework first.

Brazos is Here to Help You Make College Possible

For more than 40 years, Brazos Higher Education has been helping make education more affordable for students. As a Texas non-profit, we offer great rates and no fees on private student loans. Contact us to learn more.