How to find the Best Private Student Loan

If you aspire to go to college these days, it basically is a necessity in all but the rarest of cases to take out one or more student loans to finance your education. If you are not eligible to receive federal student loans, or if the federal student loans that you have been granted are insufficient to cover your expenses, then you may have to seek student loans from private sources.

Private loans are not as straightforward as are federal loans, so you want to be very prepared and informed in choosing among your privately funded loan options. Before we get into that, however, it merits mentioning why federal student loans generally should be sought after first.

Without going into a lot of detail (which can be found here), prospective students first should fill out the Free Application for Federal Student Aid (FAFSA) before looking into private funding for a variety of reasons. There are many perks associated with federal student loans, such as low interest rates, deferment of payment until graduation and for other reasons, flexible repayment plans, aid based on need, and lack of a need for a co-signer or credit check.

Unfortunately, federal financial aid does not work for everybody. If it is determined by your FAFSA that you are not in sufficient financial need, then you will be offered a loan. It also happens sometimes that the federal financial aid package prepared for a student is not enough. In both of these cases, it may be necessary to seek out private educational loans.


What should I look for?

Quite literally, when it comes to searching for a private student loan, you want to search for one that offers as many of the perks offered through federal student loans as possible. Start off by searching locally. The great majority of financial institutions, such as banks and credit unions, offer student loans, so finding a loan is not the problem. The trick is finding the best loan for you.

Interest Rate -- Upon first glance, different loan options that you look at may appear very similar, but it is crucial that you dig for details. The interest rate that you are offered will be one of the most important details. Many, but not all, private loans offer low rates similar to the rates of federal loans. Do not just focus on the number itself, however, but really understand what that number means. Is the rate fixed for the life of the loan, or is it a variable rate that will adjust? If it is variable, is there a cap on how high your rate can go, or should you just cross your fingers and hope for the best?

Fees -- Pay careful attention to any fees included in your agreement.

Deferment -- Federal loans offer a postponement on payments if certain conditions are met, such as if a student returns to school. Some private loans offer this perk as well, and this perk certainly could make the difference between choosing one private loan over another.

Repayment Plans -- Federal student loan borrowers have a variety of options to choose from for repayment, and a good private loan should be flexible in your repayment options as well. A related issue concerns interest payments. Unlike some federal loans, interest will start accruing immediately on your private loan, and a good loan will give you choices in how to pay your interest. Generally, you have three options:

• Deferment -- You do not begin paying off your interest until you are finished with school.

• Interest-Only Payments -- You begin making payments on your interest immediately after taking out the loan.

• Interest & Principal Payments -- You begin making payments immediately both on interest and on your principal balance.

If a particular loan that you are considering does not offer the option that you would like, then there is another lender who is a better fit for you.
Beware of “Deals” It should come as no surprise that special deals are designed to draw in your business, but really consider whether or not a particular deal on a loan will be useful to you, or if it should be overlooked.

Collateral -- Very rarely, a lender will require some type of collateral for your student loan. In this case, simply move on…

Applying for a Private Student Loan

Any private student loan worthy of your time should be have a free and simple application process. You must be 18 or older in order to take out a private student loan, and eligibility is based on creditworthiness. Because most traditional students have not yet developed strong credit histories, you probably will need to obtain a co-signer on your loan. Loan funds may be used for any educational costs whatsoever, and your loan may be disbursed in as little as five days.