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Whether you want to study at a college in your country, or you want to go abroad or you want to study an online degree, a strong financial support is required in all of these. Now the students can either go for a federal loan or a private loan. Federal loans are provided by the DoE in the US while private loans are provided by different financial institutions such as banks, credit unions, online lenders etc.
When should Private Loans be considered?
Sometimes the federal grant is not enough to cover all the expenses then money becomes the barrier in the education of a student. This is where private student loans help the student to achieve their dream. Also most of the students use the federal loans or the government financial aid to complete their undergraduate degrees, but when they want to pursue an advanced degree getting a loan becomes hard. This is where private loans comes. Private loans unlike the federal loans not just cover the tuition fees but the other expenses such as room, books, transportation, other resources, and etc.
Differences between Federal and Private Loans
The students who are applying for loans must know their requirement i.e. either they want a private loan or a federal loan. Some of the key differences between the private loan and federal loan are given below.
Private Student Loans
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Requires a good credit score
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Interest rate is not fixed
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Loan amount is higher
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Usually do not provide any alternative repayment option
Federal Student Loans
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Does not require credit score
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Interest rate are fixed
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Loan amount is limited
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Provides alternative repayment options such as borrower protections, income based repayment, etc.
How to get a Private Student Loan
Students can apply for the private loans on the individual websites of lenders. Before applying, students should decide some things such as how much amount you want to borrow, what is the loan term you want, etc.? It is very easy to fill the application form for a private student loan.
- Students will be asked to fill in their personal and financial information such as social security number, DOB, address, pay stubs, assets proof, mortgage receipts, college where you will be studying, total costs at college, amount you want to borrow, expected time of your graduation.
- You will be asked to choose between the fixed APR or variable APR
- Loan amount is limited
- You will be asked if you want to add a cosigner.
Some common terms associated with Private Student Loans
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APR: APR stands for Annual Percentage Rate. The APR means the actual annual cost borne by the borrower in the repayment of loan. This includes all other fees such as processing charges, administrative fees, application fees, etc.
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Credit Score: In simple words credit score ranges between 300 and 850. This number defines the likelihood of a person to pay its bills on time. The credit score above 580 is considered fair. If any student has a credit score below 580 they require a cosigner because the lender is hardly able to provide loans with a low credit score.
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Full deferment repayment option: This means that the student does not pay any fees while they are in school and the loan will start taking interest after a particular time of leaving a student from school.
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Immediate repayment: This means that the repayment is including principal and interest is started as soon as loan is disbursed.
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Interest only payments: In this repayment option the student only pays the interest and the principal is paid after the student has graduated.
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Cosign loan: A cosign loan is in which some family member, a parent, a US citizen or a permanent resident of US cosign for your loan. If the student fails to repay the loan amount, the amount has to be paid by cosign.
