Frequently Asked Questions About Private Student Loans
- What is a private student loan?
- How is a private student loan different from a federal student loan?
- What are the terms and conditions of a private student loan?
- How do I qualify for a private student loan?
- Can I get a private student loan on my own or will I need a cosigner?
- Will taking out a private student loan improve my credit?
- How long does it take to process a private student loan and receive the funds?
- Do I have to reapply for a private student loan each year?
- Can I consolidate private and federal student loans?
- Do I need to have a Social Security Number (SSN) to apply for a private student loan?
- Do I have to apply for a private student loan at a certain time of year?
A private student loan is a credit-based loan for college that can cover the full cost of attendance, less other financial aid received. A private student loan can be obtained from a bank or other private lending institution after submitting an application, receiving credit approval and meeting any other requirements (such as verification of school registration).
Here are some of the key differences:
|Private Student Loan||Federal Student Loan|
|Lender||Bank, credit union, financial institution, state agency or college/university||U.S. Department of Education|
|Interest Rate Type||Fixed and variable options available||Fixed|
|Rates Based on Credit Criteria?||Yes||No|
|Cosigner Required?||Yes, unless borrower has strong credit history||No|
|Repayment Plans||Varies by lender||Multiple plans ( including income-based) available|
|Forbearance Options||Typically 1 year, depending on lender||3 years|
The terms of a private student loan can vary by lender, but there are some common features. The interest rate on a private student loan is determined by the credit of the borrower and cosigner. The loan funds are sent directly to the school. Repayment typically begins 6 months after leaving school, but interest may begin to accrue immediately after the loan is disbursed. The amount borrowed usually determines the time period for repaying the loan. Failure to meet the terms and conditions will damage the credit of both the borrower and cosigner.
Unless you have a strong credit rating and history, you should apply with a credit-worthy cosigner. It's also important to remember that not all lenders provide loans at all schools, so you will need to select a lender that works with your school.
90 percent of undergraduate students and 75 percent of graduate students will need a cosigner to get approved for a private student loan. Some students may have the credit qualifications to get approved without a cosigner.
It depends. If you make all of your payments on time, your credit may improve over time. Late and missed payments will damage your credit.
The exact amount of time will vary by lender, school and time of year, but in general, the process can take as little as 2 weeks and as long as 2 months. Since the loan funds will be sent directly to your school, any money left over after the school applies your loan to your account will be refunded to you.
Yes. Just like you have to file the FAFSA each year, you will need to reapply for a private student each academic year.
Some lenders allow borrowers to consolidate private and federal student loans together into a private consolidation loan. In some circumstances, this may be a helpful option to consider. Most borrowers who want to refinance their student loans should consolidate private and federal loans separately to maintain federal benefits. Private student loans cannot be included in a federal consolidation loan.
Yes. Both the borrower and cosigner must have valid Social Security Numbers.
No. Lenders accept and process private student loan applications throughout the year. If you find that you have unexpected expenses mid-year, you can apply for a private student loan at any time.