Top Private Student Loan Questions Answered
BIG Ideas:
- Private student loans can cover the gap between financial aid and the true cost of college.
- To qualify for a private loan, you will need to have good credit, steady income, and/or a co-signer.
- Creating a budget of college expenses and borrowing only what you need can help reduce your debt after graduation.
Your college journey will take you far and challenge you in ways you never thought possible. But for many students, the first real test doesn’t come from an exam; it’s finding the answer to one very important question:
How Will You Pay for College?
Between tuition, housing, books, and everyday expenses, college costs can add up quickly. And though grants, federal student loans, and savings can help, you may find yourself searching for other ways to meet the full cost of college.
Fortunately, there’s a loan that was created to help with that: a private student loan.
Unlike federal student loans, which are offered by the government, private student loans are offered by banks, credit unions, and other non-government lenders to help you bridge the gap to meet the full cost of attending college.
Now that you know what private student loans are, it’s important that you understand how they work to ensure you make the right loan decisions for you. To help with that, we’ve put together this quick cheat sheet of the most common student loan FAQs to answer your questions about private student loans.
What Do You Need to Qualify for Private Loans?
To qualify you for a private student loan, lenders need assurance that you will pay the loan back. To determine this, they require a good credit score (usually in the mid-600s or higher) and a steady income. You also need to be enrolled in an eligible accredited school at least half-time.
What If You Don’t Meet the Qualifying Criteria?
At this stage in your life, you may not have established credit or a steady income. That’s understandable. You could, though, get a co-signer, like a parent or other responsible adult with good credit and steady income, to share responsibility on the loan.
In addition to helping you qualify, a co-signer with strong credit can help you get a lower rate, which can save you a lot of money in interest. Learn more about having a co-signer.
What Are the Interest Rates for Private Student Loans?
Unlike federal student loans, which offer predictable fixed rates set by the federal government, private student loans may offer both fixed and variable rates. With a fixed rate, your rate won’t change, so your payments will remain the same every month.
With a variable rate, however, your rate and payment could rise or fall based on market conditions. The rate you get will depend on the lender and your credit score.
How Much Can You Borrow With a Private Lender?
With a private student loan, you can usually borrow up to the school’s cost of attendance minus any financial aid you receive. The cost of attendance can include tuition, room and board, books and fees, and other school-related expenses.
So, if the school you attend has a cost of attendance of $50,000 per year and you receive $10,000 in aid, you could borrow up to $40,000 to cover the remaining balance.
Do You Have to Borrow the Full Amount Available to You?
Just because you can borrow up to the cost of attendance minus the aid you receive doesn’t mean it’s a good idea. The key is to only borrow what you need. That way, you won’t graduate with the burden of heavy debt that you’ll have to pay back after graduation.
When Do You Have to Pay Back a Private Student Loan?
Repayment terms for private student loans vary by lender, but most offer these options:
- Immediate principal and interest payments. You can make full payments of principal and interest as soon as the funds are disbursed, while the student is in school. This option will help keep your loan balance lower since interest won’t accrue while in school. You’ll also pay off your loan sooner, which is always a good thing.
- Interest-only payments. You can pay just the interest on the loan while in school. Again, this will keep interest from accruing, saving you money on interest over the life of the loan. It will not, however, shorten the term of your loan.
- Deferred repayment. You can wait to make principal and interest payments until after you graduate. In this case, interest on your loan will accrue while you’re in school, which means you’ll end up paying more money in interest. Most lenders will give you a grace period of six months, meaning you won’t have to make principal and interest payments until six months after you graduate. But again, interest during the grace period will accrue.
Should You Choose Federal or Private Student Loans?
A private student loan can be an ideal way to make college costs affordable. You will, however, always want to exhaust financial aid and federal student loans first. That’s because federal loans come with certain protections that aren’t available with private loans, such as income-driven repayment.
They also may make you eligible for public service loan forgiveness. These protections are not available with private student loans. Learn more about the differences between federal and private student loans.
How Can You Use Private Student Loans Wisely?
There are a few smart moves you can make to afford college and make your debt more manageable after graduation:
- Shop and compare private student loans from reputable lenders, since rates, fees, and repayment terms can vary widely.
- Create a budget to determine how much money you’ll need to borrow. Don’t borrow above that amount even if you qualify for more.
- Know what your payments will be after graduation, so you’re prepared.
By building your knowledge through these student loan FAQs, doing your research, and knowing all the costs of college, you can use private student loans to help you on your college journey without sacrificing the future you’ve worked so hard to build.
Brazos Can Help You Meet the Costs of College
For more than 40 years, Brazos Higher Education has helped students and parents find answers to their student loan questions and access affordable private student loans. As a Texas nonprofit, we offer competitive rates to help you fill the gap where federal aid and your savings leave off. Contact us today.
