There are lots of ways to pay for college, ranging from 529 plans to scholarships to financial aid. But sometimes, this isn’t enough.

 

The cost of a college education continues to rise, making many students and their families explore various ways to secure additional funds to pay for college. One of those options is to explore private student loans.

 

What Are Private Student Loans?

 

The two primary categories for student loan options that can help you pay for college are federal student loans and private student loans. Though both are types of loans, that’s admittedly where the similarities end.

 

Federal student loans are dispersed through the U.S. Department of Education and often are presented to a student in their financial aid letter. The terms and conditions of these loans are set by law.

 

Private student loans, however, come from a bank, credit union, or other lender. The rates and terms for a private student loan are set by the lender and are often based on your credit score.

 

When A Private Student Loan Makes Sense

Let’s look at a few scenarios when it may make sense to apply for private student loans:

 

• You need higher loan limits: If you’re a first-year college student, you can only borrow $5,500 in federal student loans. These borrowing limits increase as you complete additional years in school, but it still may not be enough to cover the full cost of college. Private student loans may help fill the gap to cover the entire cost of your education.
• You have good credit: If you have excellent credit or can apply with a cosigner, then you may qualify for rates that are below federal interest rates.
• You’ve compared your options: Because private student loans are offered by private lenders, you can shop around for different options and choose your lender. Apply with several different lenders and see which one offers you the best rates and terms.
• You need funding quickly: Applying for private student loans may offer a faster application and funding process.

 

Important Factors to Consider with Private Student Loans

 

If you’re thinking about taking out a private student loan as a means to pay for college, there are a few important elements to consider.

 

Private Student Loans and FAFSA

When you apply for federal loans, you start by filling out the Free Application for Federal Student Aid (FAFSA).

 

Private student loan lenders do not always require borrowers to complete the FAFSA in order to obtain a loan. However, this doesn’t mean you shouldn’t fill out and submit the FAFSA.

 

Completing the FAFSA is an important first step in financing your education journey so you can understand what financial aid (including federal loans) you may be eligible for. After you’ve exhausted all scholarship and grant options, and reached the federal borrowing limit, private student loans could help bridge the financial gap.

 

Cosigners Can Help

When you consider private student loan options, the rates and terms you receive are primarily based on your credit history. Many students lack a robust credit history, so using a cosigner when applying for a private student loan can help boost your approval rate and possibly even help you secure a lower rate.

 

Borrowing Eligibility

Private student loans are borrowed funds meant to support higher education goals. That said, many lenders that offer private student loans have guidelines that must be met to ensure eligibility. These requirements may include being at least 18 years old, being a US citizen, and being a full-time student. Be sure to check eligibility requirements before applying.

 

Did you know there are student loan fees? Learn more about what you need to know.