Private student loans are loans that are not guaranteed by a government agency and are made to college students by banks or financial companies. Advocates of private student loans suggest that they combine the best elements of the different government loans into one: They generally offer higher loan limits than direct-to-student federal loans, ensuring the student is not left with a budget gap. But unlike to-the-parent government loans, they generally offer a grace period with no payments due until after graduation. This grace period ranges as high as 12 months after graduation, though most private lenders offer six months.

Private loans generally come in two types: school-channel and direct-to-consumer.

School-channel loans offer borrowers lower interest rates but generally take longer to process. School-channel loans are certified by the school, which means the school signs off on the borrowing amount, and the funds for school-channel loans are disbursed directly to the school.

Direct-to-consumer private student loans are not certified by the school. Schools do not interact with a direct-to-consumer private student loan at all. The student simply supplies enrollment verification to the lender, and the loan proceeds are disbursed directly to the student. While direct-to-consumer loans generally carry higher interest rates than school-channel loans, they do allow families to get access to funds very quickly — in some cases, in a matter of days. Some argue that this convenience is offset by the risk of student over-borrowing and/or use of funds for inappropriate purposes, since there is no third-party certification that the amount of the private student loan is appropriate for the education finance needs of the student in question.

Direct-to-consumer private student loans are the fastest growing segment of education finance and, a number of providers are introducing products. Loan providers range from large education finance companies to specialty companies that focus exclusively on this type of loan. Such private student loans will often be distinguished by the indication that “no FAFSA is required” or “Funds disbursed directly to you.”

Private student loan rates are lower than non-specialized private loans (e.g., “signature” loans) but slightly higher than government loan rates. That may be changing, as pending legislation would raise government student loan rates to similar rates as private student loans. Consumers should be aware that some private student loans require substantial up-front origination fees. These fees raise the real cost to the borrower and reduce the amount of money available for educational purposes.

Most private student loan programs are tied to one or more financial indexes, such as the Wall Street Journal Prime rate or the BBA LIBOR rate, plus an overhead charge. Because private student loans are based on the credit history of the applicant, the overhead charge will vary. Students and families with excellent credit will generally receive lower rates and smaller loan origination fees than those with less than perfect credit. Money paid toward interest is now tax deductible.

Private student loans often carry an origination fee. Origination fees are a one-time charge based on the amount of the loan. They can be taken out of the total loan amount or added on top of the total loan amount, often at the borrower’s preference. Some lenders offer low-interest, 0-fee loans, but these are usually available only to those with high credit scores (800 or more). Each percentage point on the front-end fee gets paid once, while each percentage point on the interest rate is calculated and paid throughout the life of the loan. Some have suggested that this makes the interest rate more critical than the origination fee.

In fact, there is an easy solution to the fee-vs.-rate question: All lenders are legally required to provide you a statement of the “APR (Annual Percentage Rate)” for the loan before you sign a promissory note and commit to it. Unlike the “base” rate, this rate includes any fees charged and can be thought of as the “effective” interest rate including actual interest, fees, etc. When comparing loans, it may be easier to compare APR rather than “rate” to ensure an apples-to-apples comparison. APR is the best yardstick to compare loans that have the same repayment term; however, if the repayment terms are different, APR becomes a less-perfect comparison tool. With different term loans, consumers often look to ‘total financing costs’ to understand their financing options. Visit our main blog page here

Private student loans are the fastest growing sector of the multibillion-dollar student loan industry. In 2005-06, college students borrowed a record $17.3 billion in private student loans, up 913% from a decade ago.

At a time when the cost of college is surging and financial aid is shrinking, private student loans make it possible for many students to attend colleges they could not otherwise afford. But consumer advocates and student groups worry that the growth of these loans could prove disastrous for borrowers who do not understand the risks.

Unlike federal student loans, private student loans are not guaranteed by the federal government. While guaranteed student loans carry a fixed rate of 6.8%, there are no limits on the interest rates and fees private lenders can charge. Some have variable rates of up to 19%.

Once primarily used by graduate and professional students, private student loans are becoming increasingly popular with undergrads. Nearly 85% of private student loans go to undergraduate students, up from 72% five years ago.

While federal Stafford loans are available to all students regardless of their credit history, private lenders check a borrower’s credit report before making loans. Students who have no credit history, or poor credit, will typically pay higher rates than those with a good credit history or those with a parent who will co-sign the loan. As a result, the poorest students end up with the most expensive loans.

Some major lenders that provide federally guaranteed loans also offer private loans. Other lenders specialize in private student loans. Private student loans have become a necessity for a lot of families.

Borrowers can be drawn to the easy, quick, ‘30 seconds and you will be approved type of approach we are seeing more and more of on the internet.

Moreover, parents are increasingly reluctant to borrow for their children’s education. Over the past decade, the amount borrowed from the PLUS program has grown at a far slower rate than the amount borrowed from private lenders. We are seeing a new generation of parents who want their students to take charge and be liable for their education cost.

Parents in their 40s and 50s are at a place in their life where they are trying to balance the desire to help their son or daughter with education and planning for retirement, and they are really torn. Instead they tend to co-sign a private student loan taken out in a student’s name.

Co-signing typically provides more favorable rates for student borrowers, but it does not get parents off the hook. If the borrower cannot make payments, the parent who co-sign are then responsible.

Because current interest rates are relatively low, rates on many co-signed private student loans are lower than PLUS loan rates. However you may want to keep in mind that private student loans are like adjustable rate mortgages: If interest rates rise, the rates on their loans will go up as well.

Private lenders insist the long-term benefits of a college education are worth the extra cost of a private student loan. Even if it’s at a slightly higher rate, it still helps the students pull themselves up and live the life they want to live.

With all this being said. You do need to make your own decisions and do what is best for your financial situation. Visit our main blog page here

Student debt is rising every year. College costs, as well as graduate school costs, have gone up faster than inflation. Pell grants have not kept, but Stafford loan and other federal student loan interest rates are near record lows.

College Student Loan Debt

A recent study by the National Center for Education Statistics (1) shows that about 50% of recent college graduate have student loans, with an average student loan debt of $10,000. The average cost of college increases at twice the rate of inflation; the College Board (2) estimates that public school costs an average of about $13,000 a year and private schools costs $28,000.

Planning Your Financial Aid Package

There are a variety of financial aid options, from scholarships, grants, federal loans, and private student loans. There are several great resources for planning your financial aid. Individual schools sometimes provide scholarships to attract the students they want, but there are also many private or non-profit organizations that provide information on private student aid.

Reducing Your Student Loan Debt Burden after College

Once you have graduated, you have to start paying back your student loan debt. There are many ways to reduce to your debt load; the most common among them is to consolidate your private student loans or simply to refinance your private student loans. There are two main benefits to private student loan consolidation.

The bigger benefit is reducing interest rates, and therefore monthly payments and overall debt. Interest rates are near record lows now, so chances are you will get a better rate now than when you first got your loan.

The second advantage is reducing the number of creditors. This makes it easier to keep track of your payments. More importantly, it means you only have to deal with one creditor if you are late with a payment or need to renegotiate your private student loan for some reason.

Of course, you cannot consolidate student credit card debt in with your private student loans - these are very different kinds of debt. However, you can consolidate credit card debt through private companies, and you can potentially consolidate your private student loans into the same loan. But remember, federally funded student loans have much lower interest rates than private student loans, and if you roll them together you would be required to use the higher interest rate - so keep private student loan consolidation and federal student loan consolidation programs separate.

Reducing monthly payments also helps to keep all of your loans current, that is, it keeps you from having any defaulted private student loans, which can affect your credit very badly and keep you from getting addition private student loans.

Do your research and check out all the many options that we all have access to. Go into your new role and part of the working person and be responsible. Looking at your finances and making the best decisions is the responsible thing to do. Visit our main blog page here

When Federal financial aid falls short… consider a private student loan or often called alternative student loan.

Whether this is your first year at a college or university or your last, you are bound to have “surprise” expenses that you did not factor into your educational costs. Tutors, computers or software, books, last minute tuition hikes, transportation needs - a private College Loan is a flexible supplement to your student aid package to help cover those expenses not met by your existing student aid package.

With a fast and easy application process that most lenders will require, generous and flexible repayment terms, and competitive interest rates, these things can help you achieve your education goals.

Some Common Private Student Loan Credit Guidelines and Recommendations

A credit-worthy applicant demonstrates a current ability to repay a loan. To determine if you are eligible to be approved as a credit-worthy applicant ask yourself if you meet all of the criteria listed below (note: below are examples and do not apply to all lenders):

• You must have an employment history of at least two years (if self-employed, have been in business for at least two years),
• You must have proof of current income (and you must maintain employment with same employer or in the same field while you are attending school)
• You must have a satisfactory credit history of at least 21 months,
• You must have resided at your current and immediately preceding addresses for a total of at least 12 months, and
• You must be a U.S. citizen or permanent resident and have resided in the U.S. for the previous two years.

If you are not able to check off all the above boxes, you should apply with a qualified co-signer who meets the established requirements. International students can apply in some cases, depending on the lender, but must have a qualified credit-worthy U.S. citizen or permanent resident co-signer.

What are the benefits of applying for private loans with a qualified co-signer? Even if you meet the above established credit guidelines, it may be in your best interest to apply with a qualified co-signer.

Benefits of applying with a credit-worthy co-signer may include:

• Increased chance of approval
• Lower origination fees
• Lower interest rates
• Smaller monthly payments
• Less interest paid over the term of the loan

A co-signer, also known as a guarantor, is an individual who agrees that they will pay any debts if the primary account holder is unable to. A co-signer leverages their credit rating and reputation on behalf of the borrower to allow the borrower to obtain a private student loan they might otherwise be unable to get. Very often, co-signers are parents or other family members, assisting children to obtain their first line of credit, as most lenders will not lend to people with no credit history. Co-signers cannot use the line of credit; they are merely guaranteeing that any debt will be paid.

Co-signers:

• Provide information about the borrower
• Are responsible for the loan if the borrower fails to make payments
• Do have their credit rating affected by the loan
• Cannot use the loan funds (in most cases)

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Note: as lenders vary, so do their rules and restrictions on exact facts on their specific private student loans. Be sure to check with your lender regarding ALL THE FACTS in reference to their specific loan programs.

The cost of education continues to increase. After you first take advantage of Federal student loans, you may discover you still have a great deal of unmet expenses you need to cover to pay for your education.

Private student loans may be a good option to help you fill the gap between what federal, state, and school assistance provides, and what you actually need in order to afford higher education. Private student loans (sometimes called alternative student loans) are credit-based consumer loans to be used specifically for paying educational expenses.

Private student loans, like auto or home loans, are based on your credit worthiness. Most students will need a credit worthy co-signer such as a parent or other relative in order to obtain a private student loan. Terms and conditions applicable to these loans vary greatly. The use of the internet and all the options available will quickly and easily help you compare your options so you can get the private student loan that is right for you.

Factors such as interest rate, APR, length or repayment, loan minimum and maximum as well as fees should be carefully considered when researching and choosing a private student loan. The internet and other options can make this complicated research easy for anyone to understand by allowing you to compare your options side-by-side and on equal terms.

One feature of many private student loans is the ability to completely postpone or defer repayment until you graduate from college. In addition, private student loans usually offer lower interest rates than credit cards.

While we encourage students and families to pursue federal financial aid before considering private student education loans, there are many student and family situations where a private student loan is viewed as a preferred alternative. Sometimes parents want their student to be responsible for there own education. In other cases, the convenience of needing no Federal forms to get needed funds is also a consideration. What ever your situation may be, know that a private student loan is often an attractive and affordable option to help pay your education expenses. Just remember, borrow only what you need and compare your options before you borrow.

Private student loans are made by banks and other lenders. They must be used solely for education expenses, but offer convenience and flexibility often not found in other federal loan programs. However, you will need good credit and most students will need a qualified co-signer in order to obtain a private student loan. In addition, while interest rates, fees and other loan program terms are competitive, they vary widely from lender to lender. It is important to compare your options before choosing a private student loan.

The internet is a great place to start comparing private student loans. Once you have found a private student loan that meets your needs, you can apply online and in many cases get an instant decision on approval.

Just be aware, this is a loan and you will have to pay it back. Weigh your options and always read the fine print. You can get a private student loan to fit your financial situation if you do the research.