Last Updated on August 3, 2022 by Laura Turner
There are various ways to help you pay for college, including grants, scholarships, savings, and federal student loans. Federal student loans are designed to cover 100% of the cost of attendance, but in some cases, students need additional money. If these funding methods don’t cover the full cost of college, one option to cover the gap is with private student loans. But what are they? And how do they work?
We’ve partnered with College Ave Student Loans to help you understand key facts about how private student loans work.
Note: Health Professional Student Association, publishers of Student Doctor Network, may receive affiliate revenue from links in this article.
5 Facts About How Private Student Loans Work
Before taking out private student loans, you should look into federal student loans in the student’s name first. They have a low fixed interest rate, but they also have a limit of how much money you can take out each year. If you’ve maxed out what you’re able to borrow in federal student loans, private student loans work for you by covering that financing gap.
Private student loans are issued by private banks or financial institutions. and require a credit and income check to determine the borrower’s ability to pay back the loan. College students often have not established much of a credit history, so they need an eligible cosigner such as a parent or guardian to cosign on the loan for them.
Each private student loan provider sets their own interest rates. Private student loan interest rates are determined by each applicant’s creditworthiness and their ability to pay back debt. Applicants are also typically able to choose between fixed vs. variable interest rates.
Federal student loans have repayment plans set by the government and the standard repayment plan is to pay back those loans within 10 years of graduating. Private student loans may offer a variety of flexible repayment plans depending on the lender. College Ave, for example, has repayment plans ranging from 5 years to 15 years and whether to make payments while the student is in school or wait until after graduation.
Private student loans don’t have forgiveness programs that help you eliminate your student debt after working for a certain time frame. Federal student loans do have some forgiveness programs, but you have to work in the public sector for several years before becoming eligible for those programs.
Choosing Your Loan
Before securing a private student loan to help pay for college, here are a few tips:
- Research. Research loan lenders first. You’ll want to choose one that has a repayment program that works for you and your family.
- Apply. You will need a few things handy to apply such as your contact information, social security number, the school you’ll be attending, and how much you need to borrow. You’ll also need your cosigner’s information to complete the application.
- Shop for rates. To compare lenders’ rates, you’ll likely have to apply to multiple lenders to shop for the best rates.
- Accept & sign the loan terms. After selecting which private student loan is best for you, you’ll need to accept and sign the loan terms.
After you complete the above, your loan provider will make sure your loan is certified by your school before sending the funds to the school. Then you’re all set and ready to start classes!
Ready to apply? Check out College Ave for great private student loan rates.
SDN members receive special discounts on financial services, including loan advising and special loan rates.