Private loans

 

Federal law sets the maximum interest rates and fees you can be charged for a federally-guaranteed education loan. Private loans (sometimes called alternative loans) are not part of the federal government guaranteed student loan program, and can be more costly to students. Be sure you know the facts before you borrow.

 

• Credit-based loans are made by a lending institution
• Cannot always be consolidated with federal loans. Consolidation is up to the private lender. 
• May not offer the same protections that the federal loans offer, such as, options to delay repayment or change repayment conditions.
• May qualify for IRS interest deduction on federal income tax return

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Tips for selecting a private loan

 

Private loans are available to students who are not eligible for financial aid or who need additional funds to meet educational expenses.

• They are available from lending institutions such as banks or credit unions.
• Since private loans are not part of the federal government’s program of guaranteed student loans, the extra cost the lender pays to privately insure the loan is passed on to the borrower with higher interest rates and loan fees.

Private loans are credit-based which means a lender may grant a loan, but the interest rates and fees may be higher if the borrower does not meet the lender’s credit requirements.

• Sometimes lenders require a cosigner on a loan; in some cases, the presence of a creditworthy cosigner may keep interest and fees at lower levels.
• A borrower may be denied by one lender and approved by another because of the different ways they interpret borrower financial information.

Be sure to check out your options before making a final decision. We recommend you spend some time investigating possible loan programs (talk directly to the lenders) before making a decision. We encourage you to ask prospective lenders the following questions when deciding on an private loan program:

• Is a cosigner required? Is a cosigner option available if I do not qualify with my own credit?
• What is the interest rate? Is it capped at a certain amount? Is it fixed or variable? 
• Will the lender capitalize accrued interest (add it to the loan principal) and, if so, when and how often?
• Is there an origination fee, and if so, how much is the fee?
• Are fees deducted from the loan proceeds (the amount I receive) or are they added to the balance when I start repayment?
• Are there any repayment fees required when the loan goes into repayment?
• Will my lender sell my loan to another agency/company? If so, will the loan terms change?
• Does the lender offer flexible repayment options?
• Will the lender offer any online repayment incentives?
• Are there penalties for early payment? 
• Does my lender offer a cosigner release option (the cosigner is released from responsibility after I make a required number of payments)?