What is a Private Loan?
Private loans, also known as alternative loans, are available through various private lenders and banks.
Private loans are not Federally guaranteed and the terms and conditions are set by each individual lender not the federal government.
Most private loans require an approved credit check before a student will be considered for the loan.
What is the difference between a private loan and a Federal Direct Subsidized/Unsubsidized Loan?
Federal Direct Subsidized/Unsubsidized loans are federally guaranteed and the terms and conditions are set by the Federal Government. Federal Direct Subsidized/Unsubsidized loans allow students to borrow up to a fixed amount per academic year. Private loans are not federally guaranteed and the terms and conditions are determined by private lenders and banks. Most private loans allow students to borrow up to the cost of attendance minus other financial aid awarded. Most private loan lenders require an approved credit check before a student will be considered for the loan.
What is the difference between a private loan and a PLUS loan?
The PLUS loan is a federal education loan for parents of undergraduate students. The PLUS loan MPN and credit check are done in the parent’s name. PLUS loans are federally guaranteed and the terms and conditions are set by the Federal Government. The Federal PLUS loan repayment begins shortly after the final disbursement on the loan. A private loan is a loan taken out in the student’s name, which may require a co-signer. Private loans are not federally guaranteed and the terms and conditions are determined by private lenders and banks. Private loans have various repayment requirements. Most private loan lenders will require a student to make interest only payments while in school. Full repayment of principal and interest begins after the student has graduated or is no longer attending school. Some private loan lenders offer a grace period.
What is the difference between a private loan and Grad PLUS loan?
The Grad PLUS loan is a federal education loan for graduate students.
The terms and conditions for the Federal Grad PLUS loan are set by the federal government.
A private loan is not a federally guaranteed loan and the terms and conditions are set by the individual lenders offering the private loan program.
Effective July 1st, 2013 the interest rate on Grad PLUS loans is now a fixed rate which is set every July 1st, and will not change over the life of the loan.
The interest rate on Grad PLUS Loans certified for periods between July 1st, 2013 and June 30th, 2014 is 6.41%.
Private loan interest rates can vary and some have interest rate caps as high as 25%.
Both loans are credit based and require a credit approval before consideration.
Be sure to carefully research your options when considering any type of loan program.
When should I consider a private loan?
After you have exhausted all avenues of financing your education -- including scholarships, grants, work-study and Federal loans -- if you are still in need of additional funding, you may be eligible for a private loan.
What are things I should look for in a private loan?
It is important when looking for a private loan to keep in mind that the terms and conditions are set by each individual lender. There are going to be many different choices. Some good questions to consider when looking into private loan programs are:
What is the total amount you can borrower?
What is the interest rate on the loan?
Is your interest rate variable or fixed?
How often is the interest capitalized?
How often does the interest rate change?
What is the interest rate cap?
When do you begin repaying your loan?
Are there additional fees for borrowing the loan?
Are there any benefits or perks for automatic debit or on-time payments? Can a cosigner be released?
What is the repayment period?
Can I postpone my payments while I'm in school?
Is there penalty for prepayment?
What is my Annual Percentage Rate, also known as the APR?
What does APR stand for?
The Annual Percentage Rate, also known as the APR, is a rate that may differ from your "advertised" interest rate. APR's take into account all fees and/or additional charges that may be associated with the money or credit you are borrowing. APR's are a good way to compare loan options and lenders.
What is a grace period?
A grace period is a length of time between graduation, separation from school, or dropping below a half-time status and the beginning of repayment. This period will vary by loan type (ie Direct Subsidized, Direct Unsubsidized, Perkins, etc.).
When will repayment begin on a private loan?
Generally, private loans have a grace period similar to the 6 month grace period on the Stafford loan. However, each lender sets the terms and repayment conditions on their private loan programs so it's important to check with your lender to confirm when repayment begins on your private loan.
What is my interest rate on a private loan?
Interest rates on private loans vary depending on the private loan program and lender who is offering the program. Generally your credit history can play an important role in determining the interest rate on your private loan.
Are there any fees for taking out a private loan?
Private loan lenders may have additional fees required for borrowing with their loan program. You will want to carefully research each private loan program you are interested in to determine if there are additional fees or charges.
Are private loans guaranteed by the government?
Private loans, also known as alternative loans are available through various private lenders and banks. Private loans are not Federally guaranteed and the terms and conditions are set by each individual lender not the federal government. Most private loans require an approved credit check before a student will be considered for the loan.
Where can I find information about private loans?
There are several different resources you can use to research and compare private loans. Some of these include the internet, local banks and private education lenders. The most reliable resource to assist you with your private loan search is your school's financial aid office.
What does interest capitalization mean and how often does it occur?
Interest capitalization means that any interest you have accrued on your loan will be added to the principal balance of your loan. Interest capitalization may occur any number of times depending on your loan type and lender. At the minimum, capitalization will occur when your loan goes into repayment. Here is an example showing how capitalization can affect your loan balance.
Do you have any suggestions for what I should be doing now to prepare myself for repaying my loans?
• Begin repaying your private loan as soon as possible. While you are in school, make interest payments or interest plus principal payments. This will save you money in the long run and reduce the amount you owe on your loan.
• Prepare a realistic budget and stick to it
• Keep track of your loan benefits
Many lenders will offer an interest rate discount after you make a specified number of on-time payments. It’s very important to pay these loans on time to avoid the loss of any benefits.
• Contact your lender or servicer if you have not received your repayment information.
It is your responsibility to make your payments on time.
• Open all of your mail
Your lender may transfer or sell your loan. It is the responsibility of the lender to notify you if such a transaction occurs. This notification is usually communicated by mail.