Private Student Loans - an introduction
Private student loans (also know as "alternate" or "personal" student loans) are consumer loans made by private institutions to fund educational expenses. These loans are based on creditworthiness and will often require a co-signer if the student has insignificant credit history. Private loans are not guaranteed by the government.
Private loans are typically more expensive than Federal loans. Private loans often have origination fees and higher interest rates vs. federal student loans. Interest rates are often "variable" and tied to published "money rates" and indices (LIBOR, Wall Street Journal Prime Rate, etc.) and based on the applicants (or co-signer) credit-worthiness.
General features of Private Student Loans:
- Typically used as a supplement to Federal Student Loan Programs
- Not need based, with limits up to the entire cost of your education minus other financial aid
- Are typically more expensive, have origination fees (up to 8%), and variable interest rates
- Based on Credit history and may require co-signer
- For undergraduate, graduate, or professional school
- Interest accrues during school, repayment starts 6 - 12 months after school
- Interest payments can be made during school and no penalty for early repayment
- Not available for consolidation under Federal Consolidation Loans
Types of Private Student Loans
Federal Student loans are generally one of two types:
- Direct to Consumer - loans directly to students.
- School Approved - loans to students, after school "signs off" on loan