Frequently Asked Questions: Private Student Loans and Refinancing for 2019
What is a private student loan?
A private student loan is a credit-based loan for college that can cover the gap between financial aid received and the full cost of attendance. Private student loans are issued by private lending institutions, such as banks and credit unions. Lenders will require you to submit an application. Upon receipt of your application, they will confirm you meet their credit approval criteria, and ask you complete any other requirements (such as verification of school registration).
Private student loans should not be confused with student loans offered by the U.S. Department of Education, which does offer federal student loans through the federal student aid program. To learn more, please see an Introduction to Federal Student Loans.
What is the difference between federal and private student loans?
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. Some lenders may offer multiple options.||Multiple plans (including income-driven) available|
|Forbearance Options||Varies by lender. Typically one year.||Three years|
*Direct PLUS Loans offered to parents of students attending college, or graduate students, require a credit check. If the borrower is found to have adverse credit, a cosigner may be required.
When can I apply for a private student loan?
Lenders accept and process private student loan applications throughout the year. You may apply at any time.
How much can you get in private student loans?
Private student loan lenders, generally, will not let you borrow money in excess of your cost of attendance. Your school will let you know the maximum amount you can borrow in a private student loan, which will be determined by subtracting all the aid you have been awarded/accepted from your total cost of attendance.
Can I get a private student loan without a cosigner?
90% of undergraduate students and 75% of graduate students 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 all depends on your credit rating and history.
Different lenders have different qualifying criteria. To determine eligibility, it’s best to contact a potential lender directly.
How do I find a private student loan lender that works with my school?
One method is to enter your school at https://www.privatestudentloans.com/. You will be presented with a list of our lender partners who work with your school. If you have any additional questions, or would like to seek additional options, it would be best for you to contact your school’s financial aid office.
How long does it take get a student loan?
The exact amount of time will vary by lender, school, and time of year. Generally, the process can take as little as two weeks and as long as two 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.
What are the most important private student loan terms?
Private student loan terms and conditions vary by lender. However, there are some terms and conditions that tend to be pretty similar from lender to lender.
- The interest rate on a private student loan is determined by the credit of the borrower and cosigner (if needed), among other factors.
- The loan funds are sent directly to the school.
- Repayment typically begins six 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 of the loan you chose may damage the credit of both the borrower and cosigner.
Do private student loans build credit?
It depends. If you make all of your payments on time, your credit may improve over time. Late and missed payments may damage your credit.
If you need to obtain a loan later (additional private student loan, car loan, or mortgage), your debt-to-income ratio will likely be considered. It is always recommended to borrow only what you need.
Are there any prepayment fees or penalties?
Can I get a student loan for a certificate program?
Yes, some private student loan lenders offer options for students who are seeking professional training and trade certificate programs.
Many students enrolled in non-degree programs don’t know where to turn when they need help paying their tuition and fees. And like them, you may be considering other types of funding, like using a credit card or obtaining a personal loan. You would want to weigh your options carefully, credit cards may come with high interest rates, and personal loans may not offer flexible options for student borrowers.
Compare private student loan lenders that work with your school today.
Are there options for private student loan forgiveness?
Borrower benefits, like forgiveness, vary by lender. Before you obtain a private student loan, it is recommended you review the terms and conditions for each loan you are considering.
What about student loan eligibility? How does it work for private student loans?
Unless you have a strong credit rating and history, you will probably need to 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.
Is there an option for private student loan bankruptcy discharge?
Technically, yes. But private student loans, like federal student loans, are very difficult to have discharged through bankruptcy proceedings. You will need to demonstrate that the repayment of the loan would "impose an undue hardship on the debtor and the debtor's dependents." (U.S. Bankruptcy Code). For more information it is best you discuss your options with your legal adviser.