Private Student Loans
Private student loans, also known as alternative or personal student loans, can help bridge the gap between available funds and school costs, generally at better interest rates than other lines of credit.
You should only use private student loans as supplemental funding after you have exhausted all other sources of financial aid, including scholarships, grants, federal student loans and federal PLUS loans.
As with any student loan, be conservative and only borrow what you absolutely need.
There are many comprehensive, affordable sources of funds that could meet all your education financing needs. You can also get other private supplemental loans, some of which are tailored to specific courses of study.
Each loan program and each lender has different criteria for approving applicants. Whether you have a good credit history, are a parent or a student, or are backed by a cosigner can determine whether you get approved and the interest rate you will pay.
Some programs let you apply to be "pre-approved" for a loan. Pre-approval eliminates uncertainty up front, before you go through the private student-loan application process. You'll know that you qualify and the amount you can expect to receive.
Things to keep in mind if you decide a private loan is right for you:
Interest Rates
Most private loans have a variable rate and an interest rate cap, which means the cost of borrowing the money can fluctuate up to a specific percentage while you're repaying the loan. Your goal as you look at the various loans is to find the lowest interest rate with the lowest cap.
Fees
Most loans have a variety of fees associated with them. Fees for originating the loan and fees for insuring loans are probably the most common.
Term
Each private loan may give you a different length of time, or term, in which to repay the loan. Understand that you'll pay more in interest on a longer-term loan. A 20-year loan with low payments may look very enticing, but it will cost you much more than the 10-year loan with slightly higher payments.
Discounts or Benefits
Most lenders will offer discounts or benefits to their borrowers to increase the attractiveness of their loan product over the competition's product. These benefits can offer you tremendous incentives, so check them out and compare them between lenders.
Repayment Schedule
Some lenders may offer different repayment options. The standard plan is to pay the same amount every month for the life of the loan. This may not work best for you, based on your current or anticipated income (when you start repayment). A graduated plan may be offered that starts with a lower payment that grows to a larger payment over time, hopefully corresponding to increases in your income
Customer Service
Many lenders focus on customer service when they're trying to get your signature and then lose that focus afterwards. You should be concerned about that: over the life of the loan, you're going to have questions and concerns, and you're going to need to update personal information on occasion. There's nothing worse than bad customer service or reaching voice mail rather than a live operator when you need help.
Reputation
The lender's reputation also is important when considering private loans. You may know the lender's reputation already -- perhaps because your family has done business with the lender before. On the other hand, if you're unfamiliar with the lender, it may be worth your time to learn a little about them to be sure they are the right lender for your needs.
Sallie Mae offers many different private-loan options.
