College private student loans are college loans that are not guaranteed by a government agency and are made directly to the college student by a bank or finance institution. Advocates of college private student loans suggest that they combine the best of all the different government college student loans into one. They will generally offer a higher loan limits than the federal student loans and will ensure the college student is not left with a budget gap. However, unlike a federal parent loan, they will generally offer a grace period with no payments due until after graduation. This grace period can range from 12 months after graduation, although most private lenders will offer six months.

College Private Student Loan Types

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

School channel private student loans offer borrowers a lower interest rates but will generally take longer to process. School channel private student loans are certified by the college or university, which means the school will sign off on the borrowing amount, and the funds for school channel private student loans will be disbursed directly to the school.

Direct to consumer private student loans are not certified by a college or university; schools will not interact with a direct to consumer private student loan at all. The college student will simply supply enrollment verification to the lender, and then the loan proceeds are disbursed directly to the college student. While direct to consumer private student loans generally carry higher interest rates than school channel student loans, they will allow families to get access to funds very quickly. In some cases, it may only take a matter of days. Some will argue that this convenience is offset by the risk of students over borrowing and the 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 college student in question.

Direct to consumer private student loans are one of the fastest growing segments of education finance and under legislative scrutiny due to the lack of school certification. College student loan providers range from large educational finance companies to specialty companies that will focus exclusively on this niche. Such private student loans will often be distinguished by the fact that no FAFSA is required or funds will be disbursed directly to you.

College Private Student Loan Rates And Interest

College private student loans will typically have a variable interest rates while the federal college student loans will have a fixed rate. Consumers should be aware that some private student loans require substantial up front origination fees. These fees raise the cost of the borrower and reduce the amount of money available for any educational purposes.

Most private student loan programs will be tied to one or more financial indexes, such as the Wall Street Journal Prime rate or the BBA LIBOR rate, plus any overhead charge. Because private student loans will be based on the credit history of the applicant, the overhead charge will probably vary. College students and families with excellent credit will most likely receive lower rates as well as a smaller loan origination fee than those with less than perfect credit. Any monies paid toward interest can now be tax deductible. However, many lenders will rarely give complete details of the terms of the college private student loan until after the student has submitted an application, in part because this will prevent comparisons based on cost. For example, many banks and financial institutions will only advertise the lowest interest rate they charge (for good credit borrowers). Borrowers with not so good credit can expect interest rates that can be as much as 6% higher, loan fees that can be as much as 9% higher, and student loan limits that are two-thirds lower than the advertised limits.

First, you must focus on the APR. A private student loans pricing will consist of two components; the interest rate as well as other fees, which can be charged at the time the student loan is disbursed or when the student loan enters repayment. The annual percentage rate (or APR) is a value, which reflects the true cost of the student loan and captures both of these components. Lenders and financial institutions are required to provide all APR information to any prospective borrowers. In addition, private student loan borrower should also be aware that the formula that is used to calculate APR will often change depending on whether the borrower is in school or in repayment. You should compare the cost of private student loan products by comparing both the in school and in repayment APRs.

Second, it is very important to have an idea of what rate you should be able to qualify for before you apply. Many private student loan providers will market their products advertising rates as low as a specific interest rate. Unless you are a loan seeker with an almost perfect credit score, chances are you will not qualify for that lender’s lowest rate. Your APR will be determined by your credit history, your debt-to-income ratio and, with many lenders and financial institutions, by the school you have chosen to attend. Borrowers that are attending schools with a low student loan default rate are viewed more favorably.

A smart borrower will first obtain their credit score and history first from one of the three major credit bureaus (Experian, TransUnion, or Equifax - one should be able to obtain there credit score for $15.00 or less) before they start to shop for private student loan lender. With your current credit score and history, you will be able to get a good idea of what your APR will be before you even apply. Though most lenders and financial institutions will probably not be able to tell you your actual APR until you apply (they do have to do their own credit check), they should be able to let you know what their available pricing tiers, which are the different APRs available to borrowers with excellent, good, or fair credit. The pricing tiers will also vary depending on whether or not you are going to apply with a co-borrower and the co-borrower’s credit. Applying with a co-borrower can often provide access to a lower pricing tier.

As new private student loan applications can have a negative effect on your credit score because lenders will view the fact that you are looking for more credit as a risk, it is very advisable that you do not apply for any private student loan product until you have some idea of the interest rate you will qualify for. If your prospective private student loan lender will not provide you any idea of their pricing tiers prior to applying, it is strongly advised that you should not do business with that lender or financial institution.