What Is a Private Student Loan -- and When Is it a Good Idea?

You need to consider your annual cost of attendance. This will include such things as tuition, fees, room and board, books, travel, and other school necessities.

Students are able to get private student loans to help pay for tuition fees, room and board, transportation, and other costs associated with attending college or university.

In the following article, we will look more closely at what private student loans are and whether it is a good option for you.

Once you are armed with the relevant information, spend time weighing up the pros and cons of getting a private student loan with other options, like getting a federal student loan, to determine what the best course of action is for your specific circumstances.

What are private student loans?

Private student loans can be obtained from various sources, such as banks, credit unions, and other financial institutions. You have the option to apply for a private student loan, such as from SoFi, at any time, and you are free to use the money on expenses of your choosing.

Private loans are not based on your financial needs in the way that many federal loans are. And private student loans typically come with higher borrowing limits compared to federal loans.

The repayment terms can be different from those of federal student loans, too. For instance, you may be able to defer payments until you graduate or you may be required to start paying back the loan while still in education, depending on the specific private student loan that you take out.

Also, with private loans, you may need to pass a credit check to be approved. If you have poor credit or no or little credit history, a cosigner with a good credit score may be required in order to be approved for the loan.

When is it a good idea to get a private student loan?

Typically, it is best to apply for a private student loan after you have exhausted the federal loan option and other options like grants and scholarships. That is because federal student loans enable you to access loan forgiveness programs and income-driven repayment plans.

Furthermore, there are no credit checks for most federal loans and everyone who qualifies for federal student loans gets the same interest rate.

However, that does not mean you could not find a lower interest rate with a private student loan, and private loans have the advantage of not always limiting how much you can borrow each year, like federal loans.

If you do not plan on taking advantage of loan forgiveness options, income-driven repayments, and other federal benefits, or if you have exhausted federal student loan options and have a good credit score or a reliable cosigner with a good credit score, you will want to consider taking out a private student loan.

International students who are unable to qualify for federal financial aid can also benefit from private student loans.

How to Apply for a Private Student Loan

Once you decide to apply for a private student loan, the first thing you should do is compare lenders. Start off by reviewing the eligibility requirements to ensure you can qualify. Then compare different lenders for things like fees, interest rates, and repayment plans.

Once you have found the right lender, simply fill out an application. You would have to provide information such as school details, income verification, and employment information. If you are applying with a cosigner, your cosigner will need to provide the same sort of information.

Then, simply wait for the approval. Your approval could be instant or it could take a while. Your lender may request additional information before you can be approved. If your lender does require additional information, make sure you send it as soon as possible.

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