Private Student Loans: Myth vs. Reality
Student loans, especially private student loans, are a hot topic in the media these days. We continue to hear disturbing stories about borrowers with massive debt and little hope for paying it back. Fortunately, this type of situation is not the norm.
Unfortunately, these stories have encouraged the spread of false information about private student loans. In this article, we reveal the facts, so you can make the best decisions about paying for your college education.
Myth #1: When you take out a private student loan, you pay lots of extra fees.
Fact: Most private student lenders offer loans with no application, origination, or disbursement fees.
Myth #2: The interest rates on private student loans are significantly higher than other types of loans, and the rates go up fast.
Fact: Like other credit-based loans, the interest rates on private loans are determined by the credit-worthiness of the borrower and the cosigner. Borrowers and cosigners with the best credit get the best interest rates. Variable-rate loans are calculated by taking a variable index rate (usually the LIBOR or WSJ Prime) and adding a margin. Most of the largest lenders also offer a fixed-rate borrowing option.
Recent trends show the relative stability of the LIBOR and WSJ Prime rates. Huge upward or downward swings are rare. Longer-term, the interest rates may increase.
Myth #3: If you die, your cosigner will be stuck with the loan.
Fact: Most of the largest lenders will forgive the balance on a private student loan if the student borrower dies or becomes totally and permanently disabled. Other lenders offer a compassionate review process where unusual circumstances are reviewed on a case-by-case basis.
Myth #4: The interest rates on private student loans are always variable, so you never know what your payments could be down the road.
Fact: Many lenders offer both fixed and variable rate options on private loans. You can often choose the option that best fits your risk tolerance.
Myth #5: You can't suspend payments on private student loans.
Fact: While private student loans don’t offer the same deferment and forbearance benefits as federal student loans, most lenders offer programs for delaying repayment in certain circumstances, such as economic hardship and medical/maternity leave. A partial forbearance with interest-only payments may also be available.
Myth #6: You don't have flexible repayment options for private student loans.
Fact: Many private student loan lenders offer several repayment plans to choose from. You may also be able to obtain extended repayment, graduated repayment, or a period of interest-only payments.
Myth #7: Your private student loan cosigner is equally responsible for the loan until it is paid off.
Fact: Many lenders offer cosigner release programs that enable the cosigner to drop off the loan after the student borrower makes a specified number of consecutive on-time payments and meets credit criteria. However, borrowers often report difficulty in qualifying for cosigner release.
If you think you need to borrow to pay for college, borrow smart. First, look for money that doesn’t have to be repaid, like grants and scholarships. Then, consider federal student loans, and finally, private loans.
What to do next?
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- Variable Rates: 5.49% APR - 15.83% APR. Fixed Rates: 4.50% APR - 14.83% APR. Lowest rates shown include 0.25% interest rate discount with auto debit payments.1
- Apply online in minutes and receive an instant credit result2
- Multiple repayment options from in-school payments to deferred.1 No origination fee or prepayment penalty3
- Last year, students were 4x more likely to be approved with a cosigner4 and it may help you get a better rate.
- Borrow up to 100% of school-certified expenses, whether you're online or on campus5
Borrow Responsibly
We encourage students and families to start with savings, grants, scholarships, and federal student loans to pay for college. Students and families should evaluate all anticipated monthly loan payments, and how much the student expects to earn in the future, before considering a private student loan.
Loans for Undergraduate & Career Training Students are not intended for graduate students and are subject to credit approval, identity verification, signed loan documents, and school certification. Student must attend a participating school. Student or cosigner must meet the age of majority in their state of residence. Students who are not U.S. citizens or U.S. permanent residents must reside in the U.S., attend school in the U.S., apply with a creditworthy cosigner (who must be a U.S. citizen or U.S. permanent resident), and provide an unexpired government-issued photo ID. Requested loan amount must be at least $1,000.
1Advertised APRs for undergraduate students assume a $10,000 loan to a student who attends school for 4 years and has no prior Sallie Mae-serviced loans. Interest rates for variable rate loans may increase or decrease over the life of the loan based on changes to the 30-day Average Secured Overnight Financing Rate (SOFR) rounded up to the nearest one-eighth of one percent. Advertised variable rates are the starting range of rates and may vary outside of that range over the life of the loan. Interest is charged starting when funds are sent to the school. With the Fixed and Deferred Repayment Options, the interest rate is higher than with the Interest Repayment Option and Unpaid Interest is added to the loan’s Current Principal at the end of the grace/separation period. To receive a 0.25 percentage point interest rate discount, the borrower or cosigner must enroll in auto debit through Sallie Mae. The discount applies only during active repayment for as long as the Current Amount Due or Designated Amount is successfully withdrawn from the authorized bank account each month. It may be suspended during forbearance or deferment.
2In 2021, instant credit decisions were provided to 97% of applicants. Other applications typically received credit decisions in 3 to 5 business days.
3Although we do not charge a penalty or fee if you prepay your loan, any prepayment will be applied as outlined in your promissory note-first to Unpaid Fees and costs, then to Unpaid Interest, and then to Current Principal.
4Based on a comparison of approval rates for Sallie Mae Smart Option Student Loans for Undergraduate Students who applied with a cosigner versus without a cosigner during a rolling 12-month period from October 1, 2020 through September 30, 2021.5 For applications submitted directly to Sallie Mae, loan amount cannot exceed the cost of attendance less financial aid received, as certified by the school. Applications submitted to Sallie Mae through a partner website may be subjected to a lower maximum loan request amount. Miscellaneous personal expenses (such as a laptop) may be included in the cost of attendance for students enrolled at least half-time.
6 Examples of typical costs for a $10,000 Smart Option Loan with the most common fixed rate, fixed repayment option, 6-month separation period, and two disbursements: For a borrower with no prior loans and a 4-year in-school period, it works out to a 10.28% fixed APR, 51 payments of $25.00, 119 payments of $182.67 and one payment of $121.71, for a Total Loan Cost of $23,134.44. For a borrower with $20,000 in prior loans and a 2-year in-school period, it works out to a 10.78% fixed APR, 27 payments of $25.00, 179 payments of $132.53 and one payment of $40.35 for a total loan cost of $24,438.22. Loans that are subject to a $50 minimum principal and interest payment may receive a loan term that is less than 10 years.
Information advertised valid as of 02/27/2023
SALLIE MAE RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS, SERVICES, AND BENEFITS AT ANY TIME WITHOUT NOTICE. CHECK SALLIEMAE.COM FOR THE MOST UP-TO-DATE PRODUCT INFORMATION.
Smart Option Student Loans® are made by Sallie Mae Bank. Sallie Mae, the Sallie Mae logo, and other Sallie Mae names and logos are service marks or registered service marks of Sallie Mae Bank. All other names and logos used are the trademarks or service marks of their respective owners.
Edvisors is not the creditor for these loans and is compensated by Sallie Mae for the referral of Sallie Mae loan customers.
© 2023 Sallie Mae Bank. All rights reserved. SLM Corporation and its subsidiaries, including Sallie Mae Bank are not sponsored by or agencies of the United States of America.
- Competitive fixed and variable APRs starting at 4.74%1
- Multiple repayment options including: full principal and interest, interest-only, deferred, and flat payment
- Flexible payment terms ranging from 5, 8, 10, and 15 years2
- Coverage up to 100% of your school-certified cost of attendance ($1,000 minimum)3
- No origination, application and processing fees, no fees for early repayment
- Apply online in 3 minutes and get an instant credit decision
College Ave Student Loans products are made available through Firstrust Bank, member FDIC, First Citizens Community Bank, member FDIC, or M.Y. Safra Bank, FSB, member FDIC.. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.
1Rates shown are for the College Ave Undergraduate Loan product and include autopay discount. The 0.25% auto-pay interest rate reduction applies as long as a valid bank account is designated for required monthly payments. Variable rates may increase after consummation.
2This informational repayment example uses typical loan terms for a freshman borrower who selects the Deferred Repayment Option with a 10-year repayment term, has a $10,000 loan that is disbursed in one disbursement and a 8.35% fixed Annual Percentage Rate (“APR”): 120 monthly payments of $179.18 while in the repayment period, for a total amount of payments of $21,501.54. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary.
3As certified by your school and less any other financial aid you might receive. Minimum $1,000.
Information advertised valid as of 03/01/2023. Variable interest rates may increase after consummation. Approved interest rate will depend on the creditworthiness of the applicant(s), lowest advertised rates only available to the most creditworthy applicants and require selection of full principal and interest payments with the shortest available loan term.