Repaying the Price: 6 Things You Need to Know About Private Student Loans

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College is expensive, everybody knows that. Especially if you’re going into the private sphere for colleges, you’ll probably be paying sixty to seventy thousand dollars each year, which is in no way a small amount. If you’re a student about to make the jump into higher education there’s one big new aspect of paying for your education that you need to be aware of: student loans. While schools have their own financial aid programs which can help with some of the burdens of college expenses, most college students will end up taking out loans to cover their educational expenses, and you may consider private student loans. There’s a lot to learn when it comes to loans though, so to help you with some of those basics, here are our top six things you should know about private student loans.

1. They Bridge the Gap Left By Federal Loans

As you may or may not know, there are different kinds of student loans, the two most common being federal and private. Federal loans are, generally, where you should start when looking at loans; they’re standardized, have forgiveness capacity, and they offer payment plans that match your income. Private loans are distributed by non-government bodies and don’t have the same assurances, though they have their own benefits we’ll discuss shortly. At the moment, the important thing to know is that federal loans have a limit, meaning you can only borrow up to a certain amount through the federal government. If you need more money to cover the difference, private loans are the perfect place to turn.

2. They’re Not Standardized

As we mentioned in the last point, private loans are not standardized the way federal loans are. This means that the interest you’re charged, the amount you repay each month, and other factors vary greatly from loan to loan. What this means for you is pretty straightforward: do your research! Make sure you have a full understanding of the various loan plans available to you, as — unlike federal loans — your options will vary significantly.

3. You (Or a Cosigner) Need Good Credit

While the basic requirements for federal student loans are citizenship, demonstrated need for financial assistance, and enrollment in an educational program (pretty simple), the requirements for private loans tend to be a bit different. Because they’re private, lenders can pick and choose who they want to give loans to, and the deciding factor more often than not is your credit score, meaning that if you have poor credit, you may be out of luck when it comes to private loans.

Luckily, many lenders will accept a loan request from you if you have a cosigner, someone who signs your loan with you and agrees to pay the lender if you end up not being able to fulfill your payments. Cosigners can be anybody important in your life, whether it’s parents, grandparents, a friend, or you can even hire a cosigner from companies that source them. If your credit is lacking then a cosigner will be an important part of your private loan journey.

4. Interest Is Determined By Credit

We mentioned earlier that the interest rate of your private loans will vary from loan to loan, but one consistent fact with most private loans is simple: the amount of interest you pay is tied to your credit score. Interest, in case you were unaware, is how the lender makes money on your loan. Essentially, you agree to pay all the money you borrow back, plus some extra money depending on how long it takes you to repay the total. That extra money is your interest, and how much you pay is determined by your interest rate. That rate, when it comes to private loans, is most often determined by your credit score, so be prepared for just how important your credit will be when getting your loans.

5. You Don’t Need to Meet Federal Qualifications

One of the big upsides of private student loans is that the requirements for eligibility are a lot laxer than federal loans. For instance, what if you’re an international student studying in the U.S.? You don’t qualify for federal loans because you’re not a citizen, so what do you do? You turn to private loans! While, as we mentioned, your credit score will impact how likely lenders are to accept your application, you won’t be discounted from private loans for the same reasons as federal loans, making them a powerful resource for anyone who doesn’t quite meet federal qualifications.

6. They Cost Less After Undergrad

While private loans tend to be more expensive in the long run for undergraduate study, they may actually be a better choice for more advanced education. Graduate school loans provided through federal sources have considerably higher interest rates and repayment costs when compared to undergraduate loans, but that isn’t the case with private loans. If you’re moving onto even higher ed and still need help footing the bill, private loans may be your best option.

There’s a lot to learn when it comes to student loans, and private loans in particular can present a lot of confusion and complexity that may not be readily apparent at first. With these six tips, you should have a good idea of some of the basics of private loans, making you ready and prepared to seize your education while fully, well, educated, on the subject of loans.

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