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What is the benefit of privately insured student loans?

Excellent credit means better loan terms.

When a borrower has strong qualifications, they can typically obtain a very competitive interest rate on private student loans. In addition, many lenders offer long repayment terms and payment deferment options while students are in school.

Many private student loan lenders do not charge origination fees, unlike the Department of Education’s Parent and Graduate PLUS loans.

Because private loans can have favorable terms, they may be more affordable than federal PLUS Loans for some well-qualified borrowers.

You can choose between different lenders and loan servicers.

There are numerous competing private student loan lenders. This allows you to investigate your options and find a lender with whom you are comfortable working. You can focus on a lender’s interest rate, reputation for customer service, loan repayment terms, and a variety of other features.

Although federal loans provide numerous borrower benefits, lender selection is not one of them. You cannot choose your loan servicer, and every borrower receives the same rates and terms applicable to their loan.

High loan limits

Private student loan lenders typically permit you to borrow sufficient funds to cover the total cost of attendance, including room and board and other living expenses. This means any qualified borrower should be able to get enough private student loan money to cover their school costs.

Additionally, many private lenders have extremely high lifetime borrowing limits or none at all. Therefore, if you want to pursue multiple degrees or continue your education beyond the undergraduate level, you will have the option to borrow money to do so.

Other Benefits

• A private loan can fill in the gaps between the money you get from the government and what you need to pay for.
• To apply for a private student loan, you don’t have to fill out the FAFSA.
• You can apply for a private student loan with a cosigner to improve your chances of being approved and get a better interest rate.
• A lot of loan companies offer loans with no fees. Interest rates can be comparable to PLUS Loan rates, especially for borrowers or cosigners with very good credit.
• Many private student loan lenders have a cosigner release option that lets you get rid of the cosigner from the loan if you meet the lender’s requirements.

What is a private student loan?

Banks, credit unions, and other lenders give private student loans to students and/or their parents to pay for college costs. Loans can be used to pay for anything, from technical training to a bachelor’s degree to a master’s or doctoral degree.

Some lenders offer special loans for things like medical school or law school, or for groups of borrowers like international students. They are much less common than federal loans. In 2021, they will only make up 7.89% of the market for all student loans.

Students who have taken out the maximum amount of federal student loans may still not have enough money to pay for college.

Interest rates on private student loans can be either fixed or change over time. The lender will check your credit, and since most college students don’t have enough credit history to get a big loan, a parent will probably have to co-sign.

Most private loans have terms that last anywhere from five to twenty years. Mark Kantrowitz, an expert on financial aid, says that variable rates are a good choice if you can pay off the loan before interest rates go up too much. He says that a fixed rate is probably best if you plan to pay off the loan over the full term, but that you could get a lower rate with a shorter repayment term.

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When should you consider getting a private loan?

• Borrowers who have used up all their options for federal student loans and still need money to pay for their education.
• Those with good credit or who can find a co-signer with good credit who they can trust.
• Students who don’t plan to use options for loan forgiveness, plans for paying back loans based on income, or other federal benefits.
• Students from other countries who can’t get federal financial aid.

Application procedure for a private student loan

Here’s how to apply for a private student loan if you need one to pay for college.

Compare lenders

For private student loans, borrowers must have a good credit history. Check what each lender’s requirements are to see what you can get. Compare their interest rates, fees, payment plans, and any options for getting out of debt, if any.

Prequalify for a loan

Once you’ve chosen a few lenders, fill out prequalification forms to find out which ones will let you borrow money. Prequalification is a soft credit check, not a hard one, so it won’t hurt your credit score or cause it to drop. When you get quotes from more than one lender, you can figure out which one is best for you.

Fill out an application form

When you think you’ve found the right lender, fill out a full application. Get important documents ready, like information about yourself and your job, proof of income, information about your school, and tax forms. If you are applying with a co-signer, they will also need these papers.

Wait for approval

Your lender might ask you or your school for more information, so approval might not happen right away. Stay on the lookout, and if your lender needs more forms or documents, send them as soon as you can.

Find out when payments start once the loan is approved. For some lenders, that could be while you’re still in school. Others might offer deferment while students are still enrolled at least half-time.

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