After scholarships and grants, federal student loans are usually the go-to for financing a college education—and with good reason. The rates are competitive, and the repayment plans are very flexible.
That said, sometimes federal student loans will not cover all your needs.
In this article, we will take a closer look at private loans for college—when to use them, how your rate is determined, and how to apply.
When to use private student loans
When your college’s financial aid office sends your award letter, you may find that your scholarships, grants, and federal student loans don’t cover the full cost of your education. Two common ways to fill this gap are:
- Family college savings – If you or your family have been saving money to help pay for college, this is an easy choice.
- Private student loans – Take out a loan from a bank or financial institution to cover the difference.
Private student loans are similar to federal student loans—you are still borrowing money for your education and agreeing to pay it back over time. But, instead of the government lending you money, it is a bank or financial institution.
With private student loans, you don’t get federal benefits like forbearance, income-driven repayment plans, and access to Public Service Loan Forgiveness. But, most private lenders do offer flexible repayment plans and have their own unique sets of benefits. For instance, many lenders will offer deferment if you decide to pursue an advanced degree after graduating.
When to apply for private student loans
Private student loans don’t follow the same deadlines as federal student loans—you can apply any time. However, it’s best to apply as soon as you know you’ll need additional funds to avoid missing any tuition deadlines. Funding time varies from lender to lender, but from start to finish, the process could take up to a month. If you don’t know your tuition due date, check with your school’s financial aid office.
Can I start a private student loan application mid-semester?
Unlike federal student loans, you can apply for a private student loan in the middle of a semester. Although your tuition is likely due before the semester starts, you may be short on funds for books and living expenses, and a private student loan can cover any remaining financial needs.
Is it possible to apply before being accepted to a school?
Most lenders require that you’ve been accepted to college before you’re able to apply for a private student loan. You’ll also likely need a financial aid award letter from your school before applying. Still, it’s best to begin the application process as soon as you know you’ll need a private student loan to ensure your school receives the money in time.
How your private student loan rate is determined
Each lender has its own set of criteria for determining your interest rate, but usually the biggest factor is your credit score.
Your credit score, which is based on your credit history, basically tells lenders how good you have been over time in managing your debt and making payments on time. Unfortunately, most students—particularly undergraduates—don’t have much of a credit history and will require a cosigner (usually a parent) to get approved.
A cosigner is someone who signs on to the loan, and is equally responsible for it, should you be unable to make the payments at any point in the future. Having a cosigner with great credit will help you get the best rate on your private student loan. And remember, you can always consolidate and refinance private student loans in the future once you’ve established credit and started employment.
How to find the best private student loan rate
The best way to find out what kind of rate you will get and see your future monthly payments is to use Purefy’s rate comparison tool. This tool is essential because it lets you compare actual rates from multiple lenders, which is key to getting the best deal.
Rates are also not the only thing to consider. Many lenders offer unique perks like cosigner release programs, graduation rewards, and customizable repayment plans.
How to apply for private student loans
Once you’ve gone through our comparison tool and selected a lender, you will be directed to their application, where you will be asked for information about yourself and your cosigner (if applicable). This usually will include:
- Contact information
- Social security number
- Employment and income information
- School information
After you apply, you and your cosigner will be asked for documents to verify the information listed on your application—items such as a paystub or w2. Once everything is approved and you’ve signed your loan, your funds will be sent out.
The application, approval, and disbursement process can take anywhere from a few weeks to two months. While you can apply any time during the year, we recommend you allow enough time to get through the process and meet your tuition deadlines.
And, as always, if you’ve applied already or if you just have questions, you can always feel free to reach out to our award-winning customer service team at 202-524-1115 or by email at [email protected].