Private Student Loan Guide

If you have decided on pursuing private student loans, it is important that you understand the requirements to apply for a loan and that you understand some of the loans themselves and the terms associated with them. Bear in mind also federal student loans do not cover every educational cost and that private loans may be needed to complete your education, training and specialized testing or to cover expenses such as housing. Student Debt Relief can provide a list of lenders and their rates for you to review and make the best choice for your educational needs.

For a private student loan, applicants must first meet three requirements. They have to be a legal U.S. Citizen, possess a valid Social Security Number and pass a credit check. The terms of your loan will depend on the credit score; lower interest rates and shorter payment periods are available to those with higher scores. For many students just entering college, their score is not going to get the best terms. That is why most parents wind up as a co-signer on the loan. By doing this, the parent’s credit score can be used and the student can graduate with a smaller monthly loan payment and overall amount of debt.

The student loans that most private lenders offer fall into two categories: Loans that require no payment until after graduation or the student leaves school and loans that require payment during enrollment. With each loan, lenders offer options in interest rates, length of loan terms, payment incentives and different loan origination fees. Once payment has begun, lenders can also offer lower interest rates if the borrower maintains a good payment schedule. Alternately, higher interest rates can be applied if the borrower begins missing payments.

Private lenders establish their rates for borrowers against an index. These indexes are used to determine everything from student loans to auto loans. The two indexes are the Prime Lending Rate (PLR) and the London Interbank Offered Rate (LIBOR). The PLR is a fixed rate that remains so over an extended amount of time. It is also the rate offered to borrowers with the best credit rating. The LIBOR is a floating rate which means it changes regularly. Generally, the best rates that a borrower with a credit rating over 650 can get will be the PLR -0.50% or LIBOR +2.0% with no additional fees. This rate is actually competitive with the PLUS loan offered by the federal student loan program.

Banks and other private lenders rarely ever provide the full details on loan terms until a borrower submits an application. Most advertising consists of the lowest rate that an applicant can expect to pay, while explaining that the exact rate will not be determined until a credit check is accomplished. This applies to loan amounts and additional fees as well. The good thing about using private lenders is that borrowers can submit applications to banks, credit unions and other lenders to try and get the best interest rates and terms possible.

Private student loans are the only lending option for medical (including dental) and law students after graduation. Federal student loans do not cover residency expenses such as interview, travel and moving costs nor do they cover expenses incurred studying for the bar exam such as course reviews and test fees. The options for these post-graduate expenses are known as the Residency and Relocation Loans and the Bar Study Loans. 

Finally, there are a few private options for international students who come to the U.S. to further their education. These loan programs vary from state-to-state, but all of them require that a student must meet U.S. Immigration requirements and have a loan co-signer that is a legal U.S. citizen.

Student loans sourced from a private lender can help you cover 100% of educational costs, to include tuition, laboratory fees, books and even housing in many cases. These loans are based on residency and passing a credit check. While many private student loans can be more expensive than federal student loans, private lenders can be more flexible in changing the terms of their loans to meet requirements of the borrower both before and after graduation.