Three Important Steps To Taking Out A Private Student Loan

Private student loans are loans offered by private financial institutions to students looking to fund their university education.

Ideally, before you consider taking a private loan, you should have exhausted all other funding avenues—that is, federal student loans, scholarships and grants and any form of financial aid you can use toward your education-related costs.

Here’s a list of three things to do before applying for private education loans.

Step 1: Submit the FAFSA

Start with submitting the FAFSA (Free Application for Federal Student Aid) to know how much funding you can secure through a government loan or grant. By filling out the FAFSA you will not only know your eligibility for federal funding, it will also tell you if you qualify for work-study programs, which are a great way to pay off your federal student loans.

After you’ve filled out the FAFSA, the award letters you receive from your colleges will notify how much federal funding you’re eligible to get, based on which you can determine how much you’ll need to borrow from a private lender.

Explore federal loans first as they come with certain benefits that might be useful in future, such as income-linked repayment, loan forgiveness, forbearance and deferment.

Why A Private Loan?

Even if you have been approved for a federal loan or grant or both, you may still need to take out a private loan. Here are some reasons why private loans make sense to both undergraduate and grad school students:

• The funding through federal aid is not enough to meet the borrower’s overall college costs, i.e. the total cost of attending college and getting a degree.
• A private loan may offer a lower interest rate. Private lenders are now increasingly offering competitive interest rates that match or are even lower than federal interest rates. Particularly when taking out an additional loan to cover the costs not covered by an earlier federal loan, students are discovering that a private loan may get them a better deal than, say, a federal Parent PLUS loan.
• Private loans may come with additional benefits such as zero origination/processing fee, flexible repayment options, auto-debit rewards, cashback, default protection, etc. More and more private student loans now come with attractive borrower-friendly offers.

Step 2: Check your credit score

Private lenders are interested in funding the college education of students who either have a good credit score of their own or can present a creditworthy cosigner who will be their co-applicant for the loan. Applicants who’ve just passed out of school may not have the credit rating that would qualify them for a loan, which means that most applicants are required to have a cosigner with an excellent credit record.

So to increase your chances of having a loan approved, get a cosigner. The interest rate and repayment terms you’re offered will depend on your and your co-signer’s credit ratings.

Step 3: Make a detailed, feature-by-feature comparison

A student loan will be a part of your life for many years to come, so you might like to spend some time researching before you sign on the dotted line. Private student loans are offered by banks, financial institutions and credit unions, and going to each separately can be tedious and wearisome, to say the least.

However, without comparing a few lenders, you will not know what all is on offer and which loan best suits your needs. To avoid a misinformed decision, use a loan comparison website that allows you to check your eligibility with multiple lenders and lets you apply to several private loans through a single, uncomplicated online form. The lenders will then contact your college to certify your eligibility for the loan amount, and the college will let them know if the requested amount will meet your education costs.

The greatest benefit, it seems, of applying through an online loan aggregator is that you get to review a number of great and not-so-great offers at one place. Additionally, the competitive environment of an online loan marketplace gets partner lenders to offer additional benefits such as no origination fee, no early repayment penalty, forbearance protection, and so forth.

In all, you stand to get a better deal by comparing and applying to multiple lenders.

To summarize, before you explore a private student loan, take these three simple steps: fill out the FAFSA; check your credit score; and spend time comparing different offers.

We hope this information will make the process of researching private student funding a tad bit easier for you and help you make a decision that you won’t regret.