You have a bunch of options when it comes to funding your education. While some people choose federal loans to finance this expense, others choose private loans. However, before you make a decision it is important to understand personal loans more in-depth so you can see if this is an option you’d even want to consider.
Understanding Private Student Loans
Financial institutions like banks, credit unions, online lenders, state agencies, etc. all provide private student loans. These loans are different from federal loans because they do not have as many benefits for the borrower. It is also important to note that this loan option will require a credit check. The better the credit score then the better the interest rates!
If an undergraduate is trying to get a private student loan but does not have enough credit built up then they may need a cosigner like a parent to help out. Even though these loans may not have the same borrower benefits they do still have perks when it comes to their borrowing limits and with competitive interest rates. These loans can also be used in tandem with federal student loans if they are filling a funding gap!
How to Get a Private Student Loan
Even though you will need a credit check (hard inquiry) when you actually go through the loan application process, you can see what you may pre-qualify for with a soft credit check. These soft inquiries provide borrowers the ability to receive a quote of their potential loan terms like the annual percentage rate (APR), borrowing limit, etc. However, you will only know the true numbers when you submit an application.
The key to these financing options is a good credit score or a cosigner. There may be options available that do not require a cosigner but they can be hard to find and can have additional requirements that need to be met.
Popular Private Student Loan Lenders
There are plenty of options when it comes to finding a private loan lender. Some of the popular choices include
- Banks (like Discover or PNC)
- Online Lenders (like Earnest or Sallie Mae)
- Credit Unions (Based on Your Locality)
Regardless of the lender that you choose, you want to make sure that they offer protections to the borrower like deferment, forbearance, and the ability to release a consignor from the loan.
Understanding Private Student Loan Interest
Each lender will have their own interest rate conditions. One lender may offer a lower interest rate than another. You want to review interest rates across a variety of lenders so that you can know that you are making the best decision that you can for your finances. Generally, undergraduates will not be able to qualify for the lowest interest rates available. Since undergraduates usually have a lack of credit score/history, they can expect to pay the rates on the higher end.
How Does Private Student Loan Repayment Work?
The length of the loan varies by lender but is usually between 5 years and 15 year. Unfortunately, unlike federal loan options, these loans will not have the same amount of repayment programs. This means if you are looking for an income-driven repayment (IDR) plan then you will be disappointed with this type of loan.
It should be noted that private lenders will also not cover the cost of interest during set timeframes like a federal direct subsidized loan would. This can cost the borrower more in the end. Some benefits that lenders may offer can include:
- Discounts for Autopay
- Forbearance Opportunities for the Loan
- Competitive Interest Rates
Keep in Mind
Before you decide on getting a private student loan, you will want to make sure you apply for opportunities like:
- Tuition Reimbursement from Your Employer
Generally, private student loans should not be the first opportunity you consider when figuring out what financing opportunities work for you.
There are a bunch of options when it comes to scholarship opportunities. Literally, countless sources offer them! That is why it is important to do research about some of these scholarships because their goal is to help students receive financial aid rewards to go towards the cost of education. Some popular scholarships of 2021 are:
There are plenty more but these are just a few to get you started!
Tuition Reimbursement from Your Employer
There are laws that state employees can get up to $5,250 in tax-free tuition reimbursement from their employer annually. Not only does the employee receive a benefit, but so do the employers. Companies can also use that same amount as a tax deduction. It is important to note that each company is different in regards to how they handle tuition reimbursement. Some may only reimburse specific classes, others may reimburse specific schools, etc.
If you are interested in claiming your tuition reimbursement from your employer then you can have a conversation with your boss to review options available, if any. Some popular companies that offer tuition reimbursement are:
There are plenty of other companies, but if you want your employer to cover the costs of tuition, these are some places that you can start considering.
While private student loans can be a way to finance your education, they may not be the best. You should review other options like federal student loans, grants, scholarships, and more before deciding on a private student loan. These loans require a credit check and if your credit isn’t up to par then you may need a cosigner. If you do decide on this education financing option then you need to make sure that you review your lenders. Not every lender is the same and one may be able to benefit you more than another. If you have any questions, you should contact the financial aid office at your school to see if they can provide you with any more information or guidance. Take your time, research, and you will be able to find a way to finance your education that works within your lifestyle and budget!