Private student loans are a type of loan to consider once federal loans are exhausted or not applicable. Due to their higher cost and rates, it is not usually a good idea to shop for a private student loan unless you are unable to use a federal loan. However, private student loans are nonetheless effective at providing aid whether you are an undergraduate or graduate student.
The most important value to look at is the loan’s interest rate. While you may not see what exact rate you should get if you were to apply, you are able to see what the interest rate is based on. Many lending companies have varying interest rate ranges, where you can get a good idea of where you may fall in the given range. Often these rates are based upon an index, such as the 3-month LIBOR, which can complicate the prospective rate. It is a good idea to comparison shop to gauge your potential options in the most impactful part of your private student loan, the interest rate.
There are a couple of other important characteristics to look for in a private loan as well. The origination fee (fee once the loan is disbursed) will also vary from different lenders. You may be able to find a loan without an origination fee, while others typically fall between 3 to 5%. Additionally the loan limit and your eligibility may be relevant issues at your educational institution. Those which require a large amount (graduate studies, medical and law schools, international schools) may find the annual and aggregate loan limits relevant. Also, certain schools may not be eligible for particular loans. The most common case is with international students, as a large portion of private loans do not cover this need.
Also, a couple of factors can reduce the overall rate of your loan. If you apply with a credit-worthy cosigner, regardless of your credit (though especially those with little to no credit), the rate will normally be lower than if you did not apply with a cosigner. Quite often, in fact, many are not able to be approved for a private student loan without a cosigner. Also, many companies offer discounts for auto-debit programs, when repayment is automatically drawn from your bank account. These are also important aspects to consider.
The key to finding the right private student loan is by comparison shopping. It is easy to compare the most important aspects of the private loan in order to determine the best potential rate and fit for you. If you are unable to use a federal loan, finding a private student loan can be an effective and appropriate way to ease the financial burdens of your education.