What Is a Private Student Loan

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Private student loans are issued by private organizations such as banks, credit unions, and state-based or state-affiliated organizations. Undergraduate and graduate students can take out a private student loan whenever needed.

Private loans are best used to fill a college payment gap after using the maximum amount of federal loans. While federal student loans are limited to a certain amount each year of study, you can take out as much money as you need with private loans. Most private lenders allow you to borrow up to the total cost of attendance minus any other financial aid you receive.

To receive a private loan, you’ll need to apply directly with a lender and meet certain eligibility requirements to be approved. Most private loan lenders will require college students to have a certain credit score or income to take out a loan. If you can’t meet these eligibility requirements alone, you’ll need to add a creditworthy cosigner who can.

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Private student loans can have fixed or variable interest rates. Fixed interest rates stay the same throughout the entire term of the loan. Variable interest rates, on the other hand, can change or increase throughout the term of the loan. Make sure you know which option you agree to before applying for a loan.

If you are worried about taking out a private loan, though, there are plenty of options for students who need more financial aid. At Bold.org, our goal is to eliminate student debt. By applying for scholarships on our website, you can find the funds you need to lessen or eliminate student loan debt.

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What is the difference between federal and private student loans?

Unlike federal student loans, private student loans are given out by private organizations like banks and credit unions. They have terms and conditions that the lender sets.

Federal student loans also do not take credit history into account. Federal loan programs are mostly based on financial need rather than financial merit. On the other hand, private student loans almost always require a credit check.

Because of interest rates, private student loans are generally more expensive than federal student loans. Unlike federal student loans, which have fixed, standardized interest rates, private student loans can have fixed or variable interest rates anywhere from 2% to 14%. If you have excellent credit, you can get a lower interest rate.

Federal student loans also offer forgiveness and repayment options like income-driven repayment plans that are not typically offered with private loans. Private loans do have some options to avoid going into default. Your loan servicer can help you catch up on payments by temporarily lowering your monthly payment or allowing you to pause repayment with a deferment or forbearance.

How long will you pay off a private student loan?

A private student loan repayment term varies by lender. Some lenders have a ten-year repayment term, which is the standard term for federal loans. Other lenders have terms that range from 5 to 15 years.

Most private lenders allow you to defer payments until after you leave school, but some private lenders expect you to make small payments while you’re enrolled. When you leave school, you usually get a six-month grace period before you have to start your loan payments.

What are examples of private student loans?

There are private student loans for undergraduate and graduate programs, certificate programs, and medical, dental, and health professional programs.

Some examples of dependable student loan lenders include institutions like Sallie Mae, SoFi, and Credible. You can look on their websites for their interest rates and fees. Make sure you research all your student loan options before you apply.

Frequently asked questions about private student loans

Who is eligible for private student loans?

Unlike federal loans, undergraduate and graduate student loans from private lenders are not based on financial need. Private student loans are based on your creditworthiness. Your credit, or your cosigner’s credit, will be evaluated along with other financial information provided in your application. So if you have a creditworthy cosigner, it may increase your chances for approval and help get you a better rate.

What credit score is needed for a private student loan?

Private student loan lenders typically require you or a co-signer to have a credit score of at least 670. The higher your credit score, the lower your interest rate will be.

Do private student loans have to be paid back?

Yes, private student loans do have to be paid back. When you start repaying your loan will depend on which in-school repayment plan you select. You’ll make monthly payments for the duration of your loan term, typically from five to twenty years.

As you’ve learned, private loans have their pros and cons. Now learn whether paying student loans help you build credit!