Now that you’ve enrolled in college and know where you’re going to be in the fall, you’re probably focused on how you’re going to pay for it.

If you’ve factored in your savings, scholarships, grants and federal student loans and still have costs to cover, you might want to think about private student loans. Below, you’ll find several factors to consider when comparing your options.

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  • Private Student Loans: Your Complete Guide

  • The Lender

    Private student loan lenders can be a bank, a credit union or another financial organization.

     

     

     

  • Cosigners

    • A cosigner is someone who agrees to take equal responsibility for the loan. Your cosigner should be an adult you know well who has excellent credit.

    • Adding a creditworthy cosigner will increase your chances of getting approved and could get you a better rate.

  • Interest Rates

    • Interest is what the lender charges you to borrow money.

    • With private student loans, there are two kinds of interest rates — fixed and variable.

     

  • Fixed Interest Rates

    • Your rate stays the same for the life of the loan.

    • You know exactly how much your payment will be each month.

     

  • Variable Interest Rates

    • Tend to have a lower starting rate.

    • Rates are tied to an index [e.g., the Prime Index, the London Interbank Offered Rate (LIBOR)], and your rate can increase or decrease over the life of the loan.

    • Similarly, your monthly payment can increase or decrease if the index increases or decreases.

  • Deferring Repayment

    • Many private student loans have the option of deferring payments until after graduation or if enrollment drops below half-time.

    • Keep in mind that waiting to make loan payments until after you graduate could result in paying more in interest.

  • In-School Repayment

    • There are repayment options that require small monthly payments — sometimes as little as $25 a month — or interest-only payments while you’re in school.

    • These repayment plans can help save money on the cost of the loan and can sometimes have a lower interest rate.

  • Grace Period

    • A grace period is a designated period of time after you graduate, leave school or drop below half-time enrollment status before you must begin making full payments of principal and interest.

    • If you have in-school deferment, then you will not be required to make payments during this time.

  • Grace Period

    • Making lump-sum payments or even small payments each month while you’re in school can help you save money over the life of your loan.

    • If you’ve opted to make required in-school payments, these continue during your grace period.

  • Discounts and Benefits

    • Many private student loan lenders offer an interest-rate discount — often 0.25% — if you commit to making automatic payments.

    • Some lenders offer additional loan benefits so make sure to read the fine print to see if you will qualify.

  • Fees

    Be sure you are aware of the fees you could be charged — like application fees, early-repayment fees and late-payment fees.

     

     

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The Lender

First things first: Who’s lending you this money? With federal student loans, the lender is always the government. That’s not the case with private student loans. Private student loan lenders can be a bank, a credit union or another financial organization. This means there’s a variety of lenders to choose from. Do research on the lenders you’re considering and see if you can find online reviews from current or recent students about their experiences.

Cosigners

As a student, you probably don’t have an established credit history. So it can be beneficial and sometimes required for you to get a cosigner on your private student loan. A cosigner is someone who agrees to take equal responsibility for the loan. That means that if you don’t make your loan payments on time, it’s up to your cosigner to cover your debt. Your cosigner should be an adult you know well but doesn’t necessarily have to be your parent, and they should have good-to-excellent credit. Adding a creditworthy cosigner will increase your chances of getting approved for a loan and could get you a better rate.

Interest Rates

Interest is what the lender charges you to borrow money. With private student loans, there are two kinds of interest rates — fixed and variable.  With a fixed rate loan, your rate stays the same for the life of the loan, so you know exactly how much your payment will be each month. A variable rate loan tends to have a lower starting rate, but since rates are tied to an index [e.g., the Prime Index, the London Interbank Offered Rate (LIBOR)], your rate can increase or decrease over the life of the loan. Similarly, your monthly payment can increase or decrease if the index increases or decreases.

Repayment

It’s also helpful to understand the repayment terms of each private student loan you’re considering. Many private student loans have the option of deferring payments until after graduation if you are enrolled at least half-time. This can be an appealing option as students often don’t have a steady stream of income. But keep in mind that waiting to make loan payments until after you graduate could result in paying more in interest. If you opt for in-school deferment, making lump-sum payments or even small payments each month while you’re in school can help you save money over the life of your loan.

There are also repayment options that require small monthly payments — sometimes as little as $25 a month — or interest-only payments while you’re in school. These repayment plans can help save money on the cost of the loan and can sometimes have a lower interest rate.  

Grace Period

Your grace period can also affect how much you pay back. A grace period is a designated period of time after you graduate, leave school or drop below half-time enrollment status before you must begin making full payments of principal and interest. If you have in-school deferment, then you will not be required to make payments during this time. If you’ve opted to make required in-school payments, then these will continue during your grace period. Once your grace period ends, your unpaid accrued interest will be added to your principal loan balance. The duration of the grace period is often six months, but check with the lender to understand the exact timing and terms of the grace period for the private student loans you’re considering.

Discounts and Benefits

Keep an eye out for interest-rate discounts and benefits associated with the private student loans you’re considering. Many private student loan lenders offer an interest-rate discount — often 0.25% — if you commit to making automatic payments. A lower interest rate can save you money over the life of your loan. Some lenders offer additional loan benefits so make sure to read the fine print to see if you will qualify.

Fees

Some private student loans may also come with fees. Be sure you are aware of the fees you could be charged — like application fees, early-repayment fees and late-payment fees — since these can add to your cost.

Determining what private student loan to take out is an important decision. This information — along with your own research and conversations with lenders — can help you and your family make the best decision for your needs.