Private Student Loans

Private Student Loans can be used for whatever education related costs a student has. Things such as room and board, tuition, textbooks, lab fees, transportation costs to and from school and any other education related expense. However, these loans have higher interest rates then the popular federal loan programs and therefore should only be considered after the other options have been maxed out.

Popular federal loans you may want to consider first:

Federal Stafford Loans

Federal Perkins Loans

Federal Parent PLUS Loans

Federal Graduate PLUS Loans

Private Student Loan Rates
Assuming you have considered the other options and do want to apply for a private student loan lets look at the loan rates. Unlike the federal loans mentioned above, private student loan rates are set by the lending institution that underwrites the loan, typically based on the borrowers credit score. However using a credit score to set rates on student loans can be difficult since many students do not have a long enough credit history to provide an accurate credit score. Therefore interest rates often vary from lender to lender and to get the best loan rate will require a look at several lenders before settling on one.

However researching lenders loan interest rates can be complicated because few lenders will provide complete details of the terms of the student loan until after the student submits an application. Therefore applying to more then one company may be the only way to really compare the rates available. This, unfortunately, is to prevent comparisons based on cost. Lenders typically advertise the lowest interest rate which is for borrows with excellent credit, however few people qualify for those loans and the rates for borrowers with bad credit are often much higher.

And rates alone are not the whole story. To compare private loans, one must consider more then just the initial interest rates. Interest rates may be different while in school then after graduation, so make sure you understand and consider the rate for both cases. Also common is for lenders to add origination fees or some other fee to the loan. This is usually added to the principal of the loan.

Also consider your payment options. Lenders typically offer interest only or no payment options while the student is enrolled in school. Also look for interest rate incentives for on time payments and automatic deduction of payments from a bank account. Typically about .25% for reduction in interest rate for these items. However if your credit rating drops you may not qualify for any discounts.

Another Option
If your credit rating prevents you from obtain a desirable rate for a student loan, a new option is a website called Prosper. This website allows for unsecured 3 year loans. Therefore this is not a student loan, but an unsecured loan that may be at a better rate then you can obtain elsewhere. Note if you choose to apply for a loan from Prosper I am a group leader of a group specializing in loan consolidations. See my group leader page for additional details.

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