Private student loans, also known as private education loans or alternative education loans, are great resources, especially when federal aid does not fully cover the cost of school. Private loans are offered by many banks and each have their own requirements, interest rates, and protections.
When considering private student loans, there are two different types of APR, or interest rate, ranges: fixed and variable. A fixed rate will never change over the course of the loan’s life. This results in a steady monthly payment without the rate ever increasing, though income-driven repayment plans can be chosen as well. However, interest rates may be high if the loan is for a shorter term, but some are available for certain time frames (usually 10 or 15 years). You can only change the rate if you choose to refinance.
In comparison, variable rates can fluctuate during the loan’s term. While this does result in less predictability for monthly payments and can even result in an increased APR, it is usually offset by a lower rate when the loan is obtained. Variable rates are also lower than most fixed rates and tend to be in the 2.5% – 12% range. They cap out at around 18%, making them a better option than credit cards in most cases.
Since all private student loans are unique to the bank, eligibility requirements will change from loan to loan. Some are designed solely for undergraduates, graduates, or parents. Most will require good credit or a co-signer with good credit, while others may ask for a specific score, such as 600 or above. Other requirements may include specific minimum incomes, in-state only, low debt-to-income ratios, or years of good credit history.
Every private loan will have its own requirements, so it’s important to check to see what fits your needs.
In addition to the monetary amount, many private loans come with protections for yourself, your parents, or your co-signer. A common protection is the ability to defer payments while attending college. This means you can wait until after you graduate or leave school to begin paying back your loan.
Others also offer several variations of assistance in times of financial hardship. A few banks can offer the ability to reduce monthly payments temporarily or allows you to pay interest-only for a set number of months after your loan requires repayment.
Income based repayment is also an option, which offers flexibility depending on your income. You may also find banks that offer you career assistance and development.
Choosing a private loan takes time and research. It’s important to compare your options including interest rates and the protections each loan offers you and your family. Every bank will provide unique private student loans that have different eligibility requirements. We recommend first visiting and speaking with your bank to see their options and then branch out to other lenders to see what else is available to you. It’s also important to first apply for federal loans as private loans tend to have higher interest rates. They work best as supplement aid.
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