Unfortunately, many students are left with a sizable gap between their financial aid awards and the cost of attendance at college. Private financing packages were created to help students fill the gap between financial aid and the cost of attendance.
Private student loans are not a new concept by any means. Nor are educational debts evil. Private debt has been around for a very long time and many students have used secondary student lines of credit as a tool to afford a college degree. Over the last decade the popularity of private student loans has risen dramatically. The rapid increase in the popularity of privately issued educational debt has been widely documented. However, learning about private student loans is still a challenge for many students and families.
At LendEDU we work to add transparency to the private educational debt market. At LendEDU we work to bring the best private educational loan lenders in front of our users. Moreover, we work to educated our users on responsible borrowing during college and responsible repayment after college. We put together this guide to help you navigate the confusing private student loan market. In no time you will be a student loan expert, ready to responsibly use student loans to your advantage.
Before you start an application, you should know that most lenders require a minimum FICO credit score for approval. In addition, you are much more likely to be approved for the best private student loan if you have a creditworthy cosigner. Each lender has its own specific underwriting criteria, so you may have a higher chance of approval at certain lenders. Read the detail lender reviews for more information regarding lender approval.
1. PNC Student Loans Review
With all of the different private student loan lenders out there, it can be hard to make a decision about which is best for you. This is why we took the time to research and analyze all of the top lenders in the industry. If you need help funding your higher education, we have found that PNC offers some of the best private student loans out of all of the lenders.
One of the things that makes PNC so great is that the company offers a variety of different private student loans depending what level of school you are in. PNC offers undergraduate loans, graduate/professional loans, health & medical school loans, medical residency loans, and bar study loans. No matter where you are at in your education, PNC has a loan for you!
For each of the different loans available through PNC , the borrower has the option of choosing a fixed rate loan or a variable rate loan. For all loans besides bar study loans, current variable APRs start at 3.99% and go up to 11.03%. Alternatively, current fixed APRs start at 6.26% and go up to 12.99%. For bar study loans, current variable APRs start at 4.05% and go up to 11.03% while current fixed APRs start at 6.42% and go up to 12.99%. PNC has some of the lowest private student loan interest rates in the whole market. Your interest rate will be determined based on your creditworthiness and other factors. These are low interest student loans that can even compete with federal loans for those who are very qualified.
For all of PNC's private educational loans, borrowers are given up to 15 years to repay them (See PNC Repayment Example). They can choose, however, to pay off as quickly as possible.
Additionally, borrowers can choose 3 repayment options while in school: immediate repayment (full payments), interest-only payments, or deferred repayments. The first option saves the most money over the life of the loan, while deferring will cost the most as interest will accrue. Interest-only payments are recommended for people cannot afford full payments but do not want their loan balance to increase. Deferred repayment will start 6 months after leaving school.
Undergraduates can borrow up to $40,000 a year or $225,000 in total including federal student loans and other private student loans. Students attending graduate school or a medical/professional school can borrower $65,000 a year or up to $225,000 in total including federal student loans and private student loans. Those looking for a residency loan or a bar study loan can borrow up to $15,000 and have the same total limits mentioned above.
PNC Student Loans Benefits
The 3 different repayment options is a benefit of PNC's educational loans. This provides the borrower options for determining the repayment plan that best fits their situation.
Another great benefit of PNC student loans is the 0.50% interest rate reduction for setting up loan payments to be automatically deducted from a checking or savings account. This is double the typical reduction of 0.25%. Like most other lenders there are no application, origination, disbursement, or prepayment fees with PNC loans.
On PNC's website, there is plenty of information and resources to help you with the financial aid process as well as understanding your educational loans and some best practices to repay those loans. They offer a "GradReady" course to help learn about personal finance skills as well as a "RepayReady" course to help learn the best repayment practices.
Another benefit that PNC offers that is not offered by all lenders is a cosigner release after 48 months of consecutive on-time payments (must provide proof of income and pass a credit check). This means your cosigner's responsibility for your loans can be released based on an evaluation that you are able to stay in good standing on your own with repayment. In addition, PNC has a quick and easy application process that can be done completely online.
To be eligible for a PNC private educational loan, you must meet the following requirements:
- Be enrolled at least half time as determined by your school
- Be a U.S. citizen or permanent resident
- Have lived in the U.S. for the previous 2 years
- Meet the credit criteria, or have a co-signer who meets the criteria, has two years of continuous income or employment history
- Meet the debt-to-income requirements
Like most other private educational loans, applying with a cosigner increases your chances of being approved and receiving a lower interest rate. Consider applying with a qualified cosigner to obtain a lower rate which helps you save on the total cost of your loan. All-in-all, PNC is one of the best places for student loans.
PNC provides competitive student loans for students who want:
- Flexible repayment options
- Competitive private student loan interest rates
- Must be a student enrolled in undergraduate, graduate, medical/professional school, or a residency or bar study program
- Deferred payments until 6 months after graduation
- Monthly interest payments during school
- Full principal and interest payments immediately
- Current variable APRs from 3.99% to 11.03%*
- Current fixed APRs from 6.26% to 12.99%*
- Borrow up to $40,000 a year (undergraduate) or $65,000 (graduate)
2. College Ave Student Loans Review
Choosing a private student loan lender is a difficult decision. If you need a new loan to help pay for your, or your child's, education, College Ave is a great place to start. The company simplifies the process, making it much easier to apply and obtain a student loan.
The private loans offered by College Ave fit into three different categories: Undergraduate Student Loans and Graduate Student Loans, or Parent Student Loans. These loans are offered to students currently enrolled in either an undergraduate or graduate curriculum of higher education or to the parent of one of these students.
Different interest rates apply to recipients depending on which loan they are eligible for. Undergraduates can expect a choice between a variable or fixed rate. Variable rates range between 3.22% (with autopay) APR and 9.89% APR (with autopay), and a range of fixed rates of 5.24% APR (with autopay) to 11.76% APR (with autopay) serves as an option. Graduate students have the choice between a variable interest rate ranging from 4.20% APR and 9.02% APR and a fixed interest rate ranging from 6.22% APR to 10.89% APR. The graduate option has a much tighter and forgiving range since financial stability is expected, but the undergraduate loan has a much lower interest rate potential. Finally, rates for parents range from 4.33% - 8.80% APR for variable interest and 6.36 - 10.82% APR for fixed interest. These are some of the lowest private student loan interest rates in the market. If you are looking for a low interest student loan, College Ave is a great choice.
Several different repayment plans are associated with the College Ave loans; for instance, there are multiple payment period plans to choose from. Both undergraduate and graduate loan recipients can choose to pay back student loans during either 8, 10, 12, or 15 year periods at the start of full principal and interest payments. Parent loans can be paid back in any period from 5 to 12 years.
In addition to these payment period options, several payment options are available for both Graduate and Undergraduate Student Loans (four to be exact):
1) The boldest choice is to start paying full principal and interest upon receiving the loan during school; this option saves the most money because interest does not have as much time to accrue.
2) The next option is to simply pay interest every month while still enrolled at school; this option saves the second most money.
3) Students may also opt to make flat monthly payments towards their loans (payments of $25) which saves the third most out of the four options.
4) Finally, undergraduates and graduates can choose to defer all payments until graduate which allows interest to build the longest resulting in the most expensive option (sometimes necessary however).
Those who take out parent loans have the choice of making limited or full monthly payments while the student is still in school. When applying for a College Ave Student Loan, the recipient may receive up to 100% coverage of school tuition.
College Ave Student Loans Benefits
One of the best benefits of the Undergraduate, Graduate, and Parent Loans is the flexibility in payment options. Students have the option to defer or begin payments immediately with different payment stipulations; additionally, they can choose different time periods for paying these loans.
Competitive private student loan interest rates are offered allowing the recipient to find the best deal among multiple options. In addition, there is a 0.25% auto-pay interest rate reduction when making monthly payments during school enrollment.
Undergraduates and Graduates can obtain 100% tuition coverage and there are no application, origination, disbursement, or prepayment fees.
The application process is extremely fast and simple, and applicants receive an immediate decision upon submission.
These loans are simple to understand due to their namesake; they are a good option for students in the undergraduate or graduate stages of their education. Of course good credit is required, but a co-signer greatly increases chances of approval. College Ave is a one of the best places for student loans!
College Ave provides competitive student loans for graduates or undergraduates interest in:
- Flexile payment time period plans
- Low interest student loans
- Must be a student enrolled in undergraduate or graduate courses or parent of student
- Super fast application process
- Multiple payment period options: 8, 10, 12, or 15 years
- Deferred payments until graduation
- Flat monthly payments of $25 during school
- Monthly interest payments during school
- Full principal and interest payments immediately
- Variable APR from 3.22% to 9.89% (Undergraduate)2
- Fixed rate from 5.24% to 11.76% (Undergraduate)2
- Variable APR from 4.20% to 9.02% (Graduate)2
- Fixed rate from 6.22% to 10.89% (Graduate)2
- Variable APR from 4.33% to 8.80% (Parent)2
- Fixed APR from 6.36% to 10.82% (Parent)2
- 100% school tuition coverage
3. SunTrust Student Loans Review
Often scholarships and aren't enough to cover the costs of college. This is why many banks and lenders offer private student loans to help bridge the gap. Often private student loans are necessary to make students' dreams a reality. If you are looking for a private educational loan that fits your needs, SunTrust's offerings might be for you. As a well-known and highly reputable bank, SunTrust has solidified itself as one of the best places for student loans.
SunTrust offers loans for three different types of students: undergraduates, graduate students, and business school graduate students. The loans have different rates, terms, and benefits, so it is important to focus on the section that fits your needs.
Custom Choice Loan
Both undergrads and graduate students may qualify for the Custom Choice Loan. Variable rates range from 2.751% to 9.589% while fixed rates range from 4.751% to 11.044%. Repayment terms for this loan include 7, 10, and 15 years.
Additionally, students have the choice of starting repayment immediately, making interest-only payments while in school, making partial interest payments while in school, or deferring payments until 6 months after leaving school.
The minimum amount to borrow for this loan is $1,001 while the maximum is $65,000. The total amount of student debt that SunTrust allows is $150,000, including all other private student loans and federal student loans.
Graduate Business School Loan
For those students who want to pursue a graduate business degree, such as an MBA, SunTrust offers the Graduate Business School Loan.
Variable rates range from 2.751% to 7.808% while fixed rates range from 4.7541% to 9.314%. Repayment lengths for this loan include 7 and 10 years.
Like the Custom Choice Loan, students have the choice of starting repayment immediately, making interest-only payments while in school, making partial interest payments while in school, or deferring payments until 6 months after leaving school.
The minimum amount to borrow for this loan is $1,001 while the maximum is $95,000. The total amount of student debt that SunTrust allows is $175,000, including all other private student loans and federal student loans.
SunTrust Student Loans Benefits
SunTrust offers a unique benefit to students for graduating. For both undergraduates and graduate students, SunTrust will forgive 1% of your principal balance for graduating college. Though this might not seem like much, when you're dealing with tens of thousands of dollars, it can really help.
Another great benefit of SunTrust is that they offer a 0.50% interest rate reduction for signing up for automatic payments. Though a auto-pay reduction is common, most lenders only give 0.25%.
SunTrust doesn't charge any application, origination, or prepayment fees like most other private student loan lenders. Additionally, SunTrust offers a cosigner release after 48 months of principal and interest payments. This is great for borrowers whose parents or other cosigners who are concerned with being help accountable for an extended period of time.
Lastly, SunTrust has a quick application process that can be done completely online.
To be eligible for a SunTrust student loan, you must be enrolled at least half-time at a Title IV school, be a U.S. resident or permanent resident, and must be at least 17 years old (if you don't have a cosigner). If you do not have substantial credit history, you may need to apply with a cosigner to be eligible and to receive better rates. If you want the best private student loan interest rates that SunTrust offers, use a cosigner. SunTrust is a great place for student loans!
SunTrust provides competitive educational loans for graduates or undergraduates interest in:
- A variety of repayment options
- Low interest student loans
- Must be a student enrolled in undergraduate or graduate courses
- Repayment terms of 7, 10, and 15 years
- Deferred payments until 6 months graduation
- Full payments, interest-only payments, or partial interest payments while in school
- Variable rates from 4.113% to 9.479% (Undergraduate & Graduate)
- Fixed rates from 4.597% to 10.328% (Undergraduate & Graduate)
- Variable APR from 3.863% to 7.391% (Graduate Business School)
- Fixed rate from 4.347% to 8.167% (Graduate Business School)
- $65,000 yearly max loan amount for Undergraduate & Graduate
- $95,000 yearly max loan amount for Graduate Business School
- 0.50% auto-pay interest discount
- Cosigner release after 48 months of on-time principal and interest payments
5. Citizens Bank Student Loans Review
Navigating through the seemingly countless number of options for private student loans can be overwhelming. This is why we at LendEDU are trying to help borrowers navigate through the options to choose the one that will save them the most money. Citizens Bank is one of the most well-known companies that offer private student loans - and they are also one of the best. As the 13th largest retail bank with over $130 billion in assets and over 1,200 branches, Citizens Bank offers many unique options and benefits for those looking to save money on their student loans. If you are one of these people, it would be in your best interest to strongly consider Citizens Bank as the place to take out your student loan. Their combination of low interest rates and unique benefits make them a great choice.
Citizen's Bank provides a variety of private educational loans for potential beneficiaries including undergraduate students, graduate students, and even parents of students.
With three different sets of student loans, there is a wide variety of interest rates (APR) associated with the Citizen's Bank student loan package. There are stipulations to consider with payment plan decisions as well. There are a ton of different interest rates.
Starting with the different types of payment plans, recipients may choose whether to immediately start making principal and interest payments upon receiving confirmation and disbursement of the loan. Students may choose to make only interest payments while still enrolled in school. The third and final option is to defer payments until graduation.
There are three different term payment plans to choose for all three types of student loans: 5 years, 10 years, or 15 years (student loans for parents excludes the fifteen year term). Interest rates heavily dependent on the type of loan, repayment term, and payment plan.
Undergraduates looking to repay a student loan over five years must adhere to several interest rates. For immediate repayment or interest only payments, variable interest rates range from 2.98% - 9.99%, and deferred payment plans have a variable interest rate ranging from 5.06% - 9.17%. Fixed interest rates range from 5.25% - 11.24% (immediate repayment and interest only repayment); for deferred payment plans, interest rates range from 5.72% - 9.98%.
For undergraduates looking to obtain a private loan from Citizen's Bank with a repayment plan of ten years, several different interest rates may apply. When choosing to immediately make principal and interest payments or just make interest payments, an interest rate ranging from 4.49% to 9.99% is applicable while the decision to defer payments until after graduation warrants an interest rate range of 5.33% - 9.42%. Fixed interest rates range from 5.75% - 11.24% (immediate repayment and interest only repayment); for deferred payment plans, interest rates range from 6.24% - 10.47%.
Undergraduates wanting a loan with a repayment plan of fifteen years can expect interest rates for immediate repayment and interest only payment plans to range from 4.49% - 9.99%. Deferred payment plans have an interest rate range of 5.59% - 9.76%. Fixed interest rates range from 5.99% - 11.75% (immediate repayment and interest only repayment); for deferred payment plans, interest rates range from 6.28% - 10.84%.
Transitioning to graduate student loans, five-year payment plans for immediate repayment and interest only payment plans have an interest rate range of 2.99% - 9.74%; the deferred payment plan has an interest rate range of 4.98% - 9.34%. The fixed interest rates for immediate repayment and interest only payment plans range from 4.75% - 10.75% while deferred payment interest rates range from 5.94% - 10.48%.
Interest rates for ten year payment lengths for grad loans for immediate repayment and interest only payment plans range from 3.99% - 9.59%; deferred payment plans have interest an rate range of 5.47% - 9.46%. Fixed interest rates for immediate repayments and interest only payment plans range from 5.49% - 10.99%; the fixed interest rate range for deferred payments is 6.43% - 10.87%.
For fifteen year payment terms on grad loans, variable interest rates for immediate repayment plans and interest only payment plans range between 3.99% - 9.59%, and deferred payment plans have an interest rate ranging from 5.47% - 9.52%. Fixed interest rates for immediate repayment and interest only repayment plans range from 5.99% - 10.99%; deferred payment plans see an interest rate range of 7.41% - 11.42% APR.
Though these are not the lowest rates in the industry, and are not as low as federal student loans, you can still consider Citizens Bank's options low interest student loans - especially when you compare them to lenders who only offer loans with interest rates over 10%!
Citizens Bank Benefits
Aside from the extremely large magnitude of interest rates with Citizens Bank loans, there are no application, origination, disbursement, and pre-payment fees with these loans. Student loan coverage varies depending on education level; for instance, undergraduates can receive up to $90,000 while graduates are eligible for $110,000.
If timely payments are made during enrollment in school, a 0.25% interest rate reduction may be applicable. Additionally, if a Citizen's Bank student loan is acquired while currently already having a Citizens Bank account, an extra 0.25% reduction is available. This overall totals to a potential 0.50% interest rate reduction.
If you are interested in working with Citizens Bank, you can apply on the company's website in about 15 minutes. The process if fairly straightforward and easy to do. Once you apply, Citizens Bank will run an initial credit check to determine if you may be eligible. If you meet the initial requirements, you will be asked to upload certain documents that help Citizens Bank's underwriting team to determine if you actually qualify.
One of the greatest things about Citizens Bank is its 24/7 customer service. The company has people standing by to help you at any point along the process, whether you are just applying or already have a loan with it.
In addition, Citizens Bank offers some great resources to help borrowers determine what they should do. On the Student Services section of the website there is an Education Refinance Loan Calculator, a College Savings Goal Calculator, and even a calendar to track student loan payments.
These student loans apply to those with good credit, and co-signers greatly increase the chances of being approved and of receiving a low interest loan. A graduate, undergraduate, or parent of a student are eligible for these loans.
Citizens Bank Private Student Loans are great for people looking for:
- Flexible repayment plans
- Quality customer service
- Low interest rates
Some more details:
- Choose to make full or interest-only payments, or defer payments until after graduation
- Variable rates start as low as 2.98% APR1
- Fixed rates start as low as 5.25% APR1
- 5, 10, and 15-year repayment term lengths
- 0.25% interest rate reduction for on-time payments while in school3
- 0.25% interest rate reduction for already have a Citizens Bank account2
- No application, origination, disbursement, or prepayment fees
- Up to $90,000 for undergradate students and $110,000 for grad students
- 24/7 customer service
- Many helpful resources to ensure successful repayment
- See Citizen Bank important disclosures1,2,3
- Click for rate and repayment information
6. LendKey Student Loans Review
When it comes to private student loans, no two lenders are the same. From banks to specific private student loan lenders to credit unions, there are tons of options. How is it possible to decide when there are so many options? Well, it's not easy. That's why we put together this guide; to help borrowers make educated decisions regarding their private student loan lender. One of the most unique lenders is LendKey. Unlike any other lender, LendKey offers products from local not-for-profit credit unions. This unique model allows the company to offer great rates and benefits - just a few of the reasons why LendKey is one of the best places for student loans.
Because LendKey is essentially a collection of independent credit unions, there are no firm rates and repayment terms offered on the website. They do say, however, that private student loan interest rates start as low as 3.63% APR (including a 0.25% auto-pay discount) and go as high as 8.93% APR.
When applying for a private student loan with LendKey, the lenders may offer interest rate discounts for good academic performance.
LendKey charges no application, origination, or prepayment fees like most other private student loan lenders.
LendKey's specific rates and term lengths will vary based on which credit union you are matched with.
As mentioned, many of LendKey's credit union partners will offer a interest rate discount for good academic performance. Additionally, LendKey will reduce your interest rate by 1% once you enter repayment and have repaid 10% of the loan. These are both great benefits that not many other lenders offer.
Another benefit of LendKey's credit union partners is that many of them offer cosigner release after some amount of on-time, full payments.
The last great benefit of LendKey is the company's fast application process. It only includes 3 steps and takes approximately 15 minutes. First, they will check your eligibility and show a list of your matched lenders. After you choose a lender, you will continue on to finish the application process. After that, you will have to verify your identity, upload a transcript (besides first semester freshmen) and some other documents. After that, LendKey reviews your documents and looks at your credit history and lets you know if you are approved for a private educational loan!
Because LendKey works with a variety of different lenders, reviews you may find on the internet may be different than your personal experience. When applying through LendKey, try and look up specific reviews of the lenders that you are matched with.
LendKey's private student loans are great for people looking for:
- A variety of lender options
- Unique benefits and discounts
- A individual experience
Some more details:
- Rates start as low as 3.63% APR with auto-pay
- 0.25% auto-pay discount
- Cosigner release available
- Interest rate reductions for good grades
- No application, origination, disbursement, or prepayment fees
- 1% interest rate reduction after 10% of loan is repaid
1.4 million students use PSL's each year
The average new PSL is $10,000
90% of PSLs are originated with a cosigner
PSL's rates start at 2.06% for qualified borrowers
There are hundreds of PSL lenders
You can apply for PSLs online in about 15 minutes
What are Private Student Loans? How Do They Work?
Educational loans are offered by private banks to students pursuing associate's, undergraduate, and graduate degrees. Private debt is used to help college students afford the cost of attendance. Privately issued student loans can be used for tuition, textbooks, room & board, and all related education expenses. Unlike federal student loans, private student loans are not offered by the Department of Education. Instead, non-federal student debt is issued by private banking institutions. There are hundreds of private student debt lenders on the market so finding the best option can be a little tricky.
Traditional banks, online lenders, credit unions, and community banks all offer student loan options to borrowers. To qualify for a private loan you must be creditworthy. Meaning, you must have an established credit history, stable income, and be working. 90% of students will need the help of a cosigner to get approved for a collegiate loan.
In general, private debt can be used to cover your full cost of attendance.
Applying for the best collegiate loans is easy. These days, most of the best private student loan lenders prefer that you apply online. Many of the best platforms even offer mobile friendly applications for easy access on the go.
The application process is fairly straightforward. Applications usually take about 15 to 30 minutes if you are prepared. Before starting your application, you should collect your personal information, information in regards to the school you are attending, as well as any pay stubs and personal identification documents.
Most students will need the help of a cosigner to get approved. This is the case as most students do not have the creditworthiness or credit history required to get a loan by themselves. After the student has filled out their portion of the application, the student can add a cosigner to their application.
At this point, the cosigner will be asked to complete their portion of the application. After you submit the application, the private lender will pull your credit file alongside your cosigner’s credit file. Your application will then be sent to the lender’s underwriting team. Within a few hours or days you will hear back regarding the status of your application. You may be asked to electronically upload supporting documents such as a driver’s license.
After you’ve been approved for a private student loan, you will need to sign the promissory note. By signing the promissory note, you enter into a legally binding contract to repay your student loan debt in full plus any interest.
Once you’ve signed the promissory note and uploaded all supporting documents, your private student loan will be disbursed directly to your school. More on this to come!
If you are like many students, private student loans are necessary to cover the cost of your undergrad, graduate, or professional degree. While your scholarships, grants, savings, financial aid, or federal loans may be substantial, tuition and fees continue to rise, making it necessary for many Americans to apply for private student loans in order to pay for their higher education expenses.
Qualifying for private student loans has become more challenging in recent years, particularly after the recession in 2008 - 2009. Private student loans now require all borrowers to meet certain eligibility requirements. The biggest requirement is that applicants be creditworthy. Lenders will consider a number of factors to make a decision about whether to approve a loan, examining an applicant’s credit score, assets, debt, income, and even your chosen college or university and proposed field of study.
Each lender has its own specific requirements for determining whether to approve an applicant for a private student loan. Generally, a borrower must have at least an average credit score of close to 700 (on a scale of 300 to 850). Otherwise, a cosigner will likely be required in order to qualify for a private student loan. The majority of private student loans issued today have cosigners, as most applicants are young adults or teenagers who do not have a credit history or are not considered to be a good credit risk.
A cosigner is a person who signs a loan agreement along with the primary borrower. The cosigner agrees to pay the loan if the borrower cannot do so, regardless of the reason (including unemployment, death, or disability). A cosigner is taking a significant risk in agreeing to sign a student loan, as his or her credit score will be negatively impacted by a missed or late payment, and because he or she will become responsible for the debt if the primary borrower goes into default. A cosigner is usually a family member or close friend with a good credit score. Many lenders offer cosigner release programs, where the primary borrower can have the cosigner released from the loan by making a certain number of on-time payments after graduation.
In addition to having a good credit score, most banks also require that applicants for private student loans be U.S. citizens or either a permanent or temporary resident alien. Unlike federal student loans, private student loans typically do not require students to be enrolled for any set number of credit hours. Private student loans can also be used for any educational expense, which may include rent, clothing, parking passes, or even travel.
Ultimately, qualifying for a private student loan as a borrower will depend on your creditworthiness. If you have a high credit score and a decent income of at least $25,000 per year, then you may be approved for a private student loan without a cosigner. Otherwise, you will likely need a cosigner in order to be eligible for a private student loan.
Private Student Loan Interest Rates
Private student loans come in many shapes and sizes. Private student loan interest rates are determined by the private lenders issuing the loans. Rates usually start around 2% for very qualified borrowers. For others, rates can be as high as 12%.
Unlike federal student loans, privately issued credit can be customized to fit the financial objectives of the student. Most public banks allow students to select a variable or fixed interest rate.
It really depends on the creditworthiness of the borrower and the cosigner. And, the options you select with have an affect on the rate you pay. For very qualified borrowers, privately issued loan rates can be lower than federal student loan rates!
Fixed interest will have a constant rate for the lifetime of the loan. For example, if you receive a 6% fixed rate, you will be responsible for paying 6% in interest each year for the life of the loan. Fixed rates usually start well above variable rate options. As a rule of thumb, fixed interest rates start about 1.5% above variable interest rates.
In contrast, variable interest rates fluctuate over the lifetime of the loan. Variable rates usually start well below fixed interest rate options. Why? Well, variable interest rates move with market interest rates. If market interest rates go up, variable rates will also increase. If market interest rates go down, variable interest rates will also decrease. Variable rates are usually based off the LIBOR interest rate index.
It is up to you to choose either a variable or fixed private educational loan interest rate! Each option has its benefits, and potential risks. After you’ve been approved for an educational line of credit, you will make the final decision on the rate you would like. Some students elect to take both variable and fixed rates if they are unsure which option they prefer.
Co-Signing is Common
As mentioned earlier, most students will need the help of a cosigner to get approved for a private line of collegiate credit. Cosigners can also help you get the lowest private student loan interest rates that a lender offer.
A cosigner can be any creditworthy adult willing to accept responsibility for the loan in the case that the primary borrower does not make payment. In short, cosigners are jointly responsible for the repayment of student loan debt.
Most students need the help of a cosigner because students usually do not meet the credit history or income requirements. Cosigners are usually parents or grandparents, but virtually anyone can cosign a loan.
Cosigners should know that their credit may be affected if the primary borrower does not repay the loan. Late payments and missed payments will also affect the credit of the cosigner. And, creditors will look to collect from the cosigner if the primary borrower falls well behind on their payments. In some cases, cosigners may be left on the hook even if the student passes away or becomes seriously disabled.
Cosigning private student debt in not a simple decision. Cosigners need to consider their own financial objectives and circumstance before signing that promissory note. After graduation, the process of student loan consolidation and refinancing may allow you to release your cosigner.
In general, cosigners will need to make at least $25,000 annually and have good credit (above 680 FICO score). Moreover, cosigners must not have a debt-to-income ratio above 40%. When you agree to cosign a student loan, your credit will be checked during the application process.
Once you’ve been approved for a private student loan, the lender will verify your enrollment and cost of attendance with your school. In general, private educational debt is disbursed directly to the school. These funds will then be credited to your account at your school. If there is money left over, the school will issue you a check for the difference. Some schools even allow students to electronically transfer extra funds to their bank account.
Most PSL lenders give you a choice of a few repayment options while you are in school. Popular options include:
Interest and principal
Depending on the option you select, you may be required to make payments while you are in school. Most students choose to defer all of their payments during school. Meaning, no student loan payments are required while you are taking classes.
That being said, students who elect to pay interest only payments during school will save thousands of dollars on average. By paying your interest in school, you avoid compounding interest charges.
Furthermore, many lenders even offer discounts if you make payments while you are in school.
Depending on the option you select, you may be required to make payments while you are in school. Most students choose to defer all of their payments during school. Meaning, no student loan payments are required while you are taking classes. That being said, students who elect to pay interest only payments during school will save thousands of dollars on average.
By paying your interest in school, you avoid compounding interest charges. Furthermore, many lenders even offer discounts if you make payments while you are in school.
The best student loans will come standard with 10 or 15 year term lengths. Your term length is the period of time you choose to repay your loan. The longer the term length, the lower your monthly payment, and higher your interest rate. The opposite is true for short term lengths.
You will have a short period of deferment after you graduate. After your deferment period ends, you will be required to make monthly principal and interest payments. Reputable lenders will not charge you fees to make additional principal payments. So if you want to pay off your private student loans quickly, you can do so without additional fees.
Making PSL payments is easy. Most students elect to make their payments electronically. Most lenders offer a 0.25% discount for making electronic payments. Setting up electronic payments is easy and can be done in less than 15 minutes.
Private Student Loan Servicers
Student loans can be complex. From interest rates to loan terms to the companies that handle your loans, it can be confusing to know exactly what is going on with your loans. When you have private student loans, you probably have frequent contact with your loan servicing company. Learning how to work well with your loan servicer can help to ensure that you stay current on your student loans and manage your debt in the best possible way.
Student loan servicers work on behalf of the bank or other private lender that provided the money for your education. The loan servicing company essentially makes sure that your loans are being paid, by collecting and keeping track of your payments. They are responsible for managing your student loans. They work with you to help them stay on top of your student loan debt. If deferment or forbearance is an option under the terms of your private student loans, you will need to talk directly to your student loan servicer — not the lender — to discuss applying for these plans. When you apply for a private student loan, you are assigned a loan servicer by the lender.
The most common student loan servicers include Sallie Mae, Navient, Nelnet, Wells Fargo. Finding out who services your private student loans can be as simple as looking at bills that may come in the mail each month. If you do not receive paper bills from your student loan lender, you can find out who services your student loans by requesting a copy of your credit report. You are entitled to a free credit report each year, which you can obtain from one of the three major credit reporting agencies.
You can use the servicer’s website to determine how much you debt you have, how much interest has accrued and to make sure that you are on top of your payments. You can also contact your servicer to discuss issues that you may be having. For example, if you recently have become unemployed, you can contact your servicer to discuss forbearance or deferral options for your private student loans. In many cases, by signing up for an account with your student loan servicer’s website and enabling automatic payment, you may be eligible for an interest rate reduction.
Working with private student loan servicers can require a fair amount of patience, and attention to detail. Student loans can be complex, particularly given that many borrowers have more than one loan. Many students have had difficulty working with their student loan servicers, complaining that payments have not been credited to their accounts or that paperwork has gone missing. Working with student loan servicers requires that borrowers keep careful records of all payments made and that they maintain their composure during contacts with their servicers. Keep careful notes of all conversations that you have, and make a note of who you speak to, and when you speak to them. Always be polite and courteous when on the telephone with your student loan servicer. Be sure to have copies of your student loans on hand, which can be obtained directly from your student loan lenders. If you do not have copies of your loans and other documents regarding your accounts, request them from the servicer or the lender.
Your private student loan servicer acts as the middleman between you and your borrower. Maintaining a good relationship is often critical to keeping your student loans in good standing and ensuring that you can pay off your student loans in a timely fashion. If you do have concerns about how your student loans have been serviced, consider contacting the Consumer Financial Protection Bureau to register a complaint.
Differences Between Federal Student Loans and Private Student Loans
When it comes to paying for college, most students will have to take on some form of debt. There are two forms of loans that most students will consider: federal and private student loans. Understanding the difference between these two types of loans — including the advantages and disadvantages of each — is the key to making a smart choice about your financial future.
Federal student loans are generally considered to be the best option for most students. They offer a variety of protections for borrowers, such an income-based repayment plans, forbearance, and loan forgiveness if you work in certain fields. Federal student loans are not based on credit worthiness and do not require a cosigner. Federal student loans are offered at a fixed interest rate, and have specific limits on the amount that can be borrowed each year for undergraduate and graduate school, and a lifetime limit on total borrowing.
There are a number of different types of federal student loans, each of which has its own benefits. Direct subsidized loans, also known as subsidized Stafford loans, are for undergraduate students with a demonstrated financial need. Borrowers are not responsible for any interest that accrues while they are still in school. On the other hand unsubsidized Stafford loans are available to both undergraduate and graduate students. These loans are not based on financial need, and they do accrue interest while borrowers are in school.
In addition, the federal government offers PLUS loans to graduate and professional students and to parents. These loans are based on a borrower’s credit score. Grad PLUS loans do not have limits, and can be used to pay for either graduate or professional loads. Similarly, Parent PLUS loans can be taken out by parents to pay for undergraduate education for dependent children. There is no limit on the amount of money that can be taken out for these loans, but parents must have a solid credit history to qualify.
When federal student loans are not sufficient to cover the cost of higher education, many students turn to private student loans. For parents and students with good credit, private student loans are often available at interest rates that could potentially be lower than those offered by the federal government.
Private student loans can have either fixed or variable interest rates. Fixed interest rates have interest rates that stay the same over the life of the loan. Variable rates, on the other hand, change based the London Interbank Offered Rate, or LIBOR. The interest rate charged for a private student loan will depend on the creditworthiness of the applicant.
As a general rule, applicants under the age of 25 will require a cosigner in order to qualify for a private student loan. A cosigner will be responsible for repaying the student loan in the event that the primary borrower defaults on the loan. Typically, a family member or close friend with a strong credit score cosigns a loan for a student applicant. A student generally does not have enough of a credit history to qualify for a student loan; lenders are not willing to take the risk that the student will be able to pay back the loan. A cosigner allows the student to qualify for the loan, and will often enable the student to obtain a lower interest rate. After a borrower has graduated and has made a certain number of on-time payments, he or she may qualify for a cosigner release.
Interest on private student loans acrrues while the borrower is still in school. As a general rule, deferral, repayment and forbearance options are less generous with private student loans than with federal student loans. For this reason, most financial experts recommend that borrowers who require student loans look to federal student loans as a first choice. If federal loans are insufficient to pay for your college or graduate school, compare options for private student loans.
Best Student Loans for Parents
Many parents start saving for their child's education before the he or she can speak. Starting early is definitely a smart strategy and the earlier you start, the more likely you are to save up. Often, however, parents cannot fully cover the cost of a higher education with this saved money in addition to their incomes. When parents still want to support their child's education, they might choose to take out loans in their own names. This way, the child will not have to graduate with debt and can start their real financial career in the green.
There are many lenders who allow parents of students to take out loans in their own names as opposed to just having them cosign on a loan in the name of their child. Furthermore, taking out a private loan as a parent may provide better interest rates as compared to having a student take one out, even if a parent cosigns. As mentioned above, private student loan eligibility and interest rates are determined based on creditworthiness. As you may expect, parents almost always have better credit scores than their children, who may have no credit history at all.
The process of applying for and receiving private student loans as a parent is, in most cases, the same that a student would go through. Parents still need to submit paperwork to the lenders so they can pull their credit. Like when a student takes out a loan, the funds will typically be sent directly to the school. This is done so the funds are only used for school purposes and nothing else.
Risks of Private Student Loans
Students should always use federal student loans and other forms of financial aid before considering student loans offered by a private bank. Before signing that promissory note, you should know that privately issued student debt does have risks.
Like other types of loans, privately issued educational credits do need to be paid back with interest. If you elect to defer your student loan payments while you are in school, the interest owed will accumulate and be added to the balance of the loan. If you let you interest accumulate and capitalize for too long, you might find yourself owing much more than you had originally planned.
Soon after graduation, you will be required to start the repayment of your loans. If you cannot repay your college debt you put your credit at risk. Missed payments or late payments equates to negative marks on your credit. Before taking out student loans of any kind, you should judge your ability to repay your debt after graduation.
Unlike other types of consumer debt, privately issued financing cannot be discharged during bankruptcy. Meaning, you can’t escape privately issued debt.
Federal student loans come with many built in borrower protections such as income based repayment. Private student loans usually come without income based repayment options, and forgiveness options.