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Private loans

Planning for a Private Student Loan

Updated 11/24/2021

When you’re considering a private student loan, it’s essential to understand the loan features, the application process, and its repayment terms. By comparing all your options, you’ll be able to make the right choice suited to your particular needs.


Understanding All Aspects of Your Private Loan

Critical information to consider when shopping for student loans is to be aware of the annual and cumulative loan limits, interest rates, fees, and the loan terms.


Often, interest rates, fees, and loan limits depend on the borrower and cosigner’s credit history and loan options chosen by the borrower, such as in-school deferment and repayment schedule.


The Application Process

When you apply for a loan, the lender will review your credit history. Lenders will use your credit score or FICO score as a starting point when evaluating your credit request. Some lenders will look at additional aspects of your credit profile beyond your FICO score.


Once your loan has been approved and you complete your paperwork, the lender will send a certification request to your school. The school will certify that you are indeed a student at the institution and will determine if you are eligible for the full amount requested.


Additionally, the school will determine the disbursement date for the loan funds to be delivered directly to the school. Typically, schools encourage you to borrow for the full academic year and will request that half of the loan funds be sent to the school for Fall semester and the other half be sent for the Spring semester. If you are borrowing for a non-traditional semester, the school will set the disbursement dates accordingly.


Receiving Funding & Beginning Repayment

Student loan funds are sent directly to your school to pay for any outstanding charges you may have on your account. Once received, the borrower will be required to begin repayment as soon as is stipulated in the loan agreement. Take time to understand the terms of your loan, when you can expect funding, and when you should expect to begin repayment on time.


Responsibilities of a Private Student Loan Borrower

The borrower and, if applicable, the co-signer are responsible for the repayment of the loan, regardless of the student’s success in obtaining a degree or finding a job after graduation.


The lender or servicer should be notified immediately if you:


  • Have a change in name, address, phone number, or Social Security number
  • Drop below half-time enrollment status
  • Graduate, withdraw, or transfer to another school
  • Fall on personal hardships, are ill, become unemployed, etc.
  • Need to defer your private student loans

If you are ever having difficulty making your payments on your loan, you should reach out to your lender to determine your options.


Doing Your Homework

Available Interest Rates

Remember that credit check during the application process? Well, lenders do that for good reason. Interest rates are based on credit history and vary by lender and loan program. Many private student loans offer a variable or fixed interest rate. Variable rates may change monthly or quarterly, but fixed have a set interest rate for the life of the loan.


How Long is the Loan Repayment Period?

Often, repayment terms are set by the lender and range from 5 to 25 years. Other times, the lender will offer the option to choose the repayment term. Note that a longer repayment term may give you a lower monthly payment, but it will end up costing you more in interest overall.


Do I Need a Cosigner?

A cosigner is not always required, but most students may need one to qualify. The reasoning behind this is that many students do not have a substantial credit history. Having a credit-worthy cosigner can make all the difference.


You may want to ask whether or not the lender has an option to release a cosigner after specific criteria have been met.


What Fees Apply to the Loan?

It’s important to understand all of the relevant fees and costs associated with any loan you take on, including student loans. Ask which ones (if any) will apply to your loan, then take steps to plan for those fees during your repayment (if any are applicable). Many lenders offer private loans that do not have fees, in some cases even including late fees.


How to Access Information on the Loan

Most private loan lenders will give you secure online access to your account. If this is so, you’ll have 24/7 access.


Deferment Options

Deferment options always depend on the lender and the loan program. If the loan offers the ability to defer payments while you’re in school, interest will accrue during the deferment.


If you’re interested and able to do so, you can make interest payments while you’re in school or during your grace period. This will help eliminate additional interest that the loan accrues.


What Happens if I Miss a Payment?

Missing a payment can bring significant consequences for borrowers and could incur additional late fees and loan delinquency. Once your loan has been considered “delinquent” for a certain amount of time, your lender will declare the loan to be in default. If this occurs, it could negatively impact your and your cosigner’s credit scores.


If you should ever have issues making payments on your private loan, contact your lender or servicer immediately to go over your options.