Applying for a private student loan should only be an option if you’ve already exhausted everything the federal program has to offer. Private loans are offered by non-federal lenders, meaning you’ll have to look into banks, credit unions, and online lenders that offer this type of financial aid.
Most importantly, you’ll have to meet their strict requirements in order to qualify and receive a loan that can cover all your remaining expenses. Keep in mind that student loans cannot be used for things that are not in some way related to your educational journey. Do your research before submitting any applications to make sure you fully understand what you’re signing up for.
Most private lenders have strict qualification requirements to ensure that candidates are capable of repaying loans as agreed. With that in mind, you will have to meet certain criteria in order to get your loan request approved. The most important qualification requirement is your credit score which needs to be in the high 600s in order to secure this type of financial aid. The higher your credit score, the lower the interest rate for your loan is going to be.
However, if you cannot qualify on your own based on credit score, you will have to bring in a co-signer who could back you up in case you are unable to repay the loan. Either you or your co-signer need to have a stable income to show that you can afford the monthly payments. Other requirements you may run into include age (usually 18 and above), US citizenship, and high school completion status.
Step 2: Compare Your Options
With so many private lenders out there, your options are truly flexible when it comes to choosing the source of your funding. The specific qualification requirements will differ depending on the lender you choose, which is why you need to spend some time doing research before making your final decision.
When comparing different private student loan options, look at the following factors:
- Interest rate - what is the lowest rate you qualify for?
- Term - how long will you have to repay the loan at each lender?
- Monthly payment - what is the fixed monthly payment you’ll have to afford?
- Origination fee - does the lender require you to pay in order to take out the loan? If so, what is the lowest fee you can find?
- Late fee - how much will you have to pay in case you’re late with your monthly installments?
- Co-signer release - check if the lender offers an option for the co-signer to come off the loan once you transition to a stable income. This is not a mandatory feature but it can come in handy in the future.
Step 3: Gather Your Paperwork
Once you find the right lender where you can qualify for a loan, it’s time to start gathering your paperwork. Although the exact papers required for the application will depend on the lender you choose, there are several documents you can prepare beforehand to make the process easier later on.
These include personal information (both yours and your co-signer’s), social security numbers, gross annual incomes, employment information and a recent pay stub of the previous 60 days, a list of assets and their values, as well as monthly rent or mortgage you or your co-signer may be paying. As far as your school information goes, you will need info such as the year you’re expected to graduate and how much it will cost to attend your college of choice, along with how much you need to borrow to cover those costs.
Step 4: Submit Your Application
You can apply for a student loan at your chosen lender’s website or via mail or phone number. The next steps will depend on the lender’s application procedure.Usually, it starts with filing your personal information and providing any details they ask for, including financial info and pay stubs.
Then, you’ll have to agree to the lender’s terms and conditions and wait for your approval. In most cases, the approval process takes a few days to a week. You may want to connect with multiple lenders to check which are the best rates you can get approved for. Make sure the lender’s terms work for you, especially the monthly repayment rate and the period you’ll be paying the entire loan off.
Always Choose Federal Loans First
As you can tell, the act of submitting an actual application is the easiest step of this entire process. What’s more challenging is finding the right lender who’s going to offer you the lowest interest rates possible. Make sure to take your time when doing research and don’t be afraid to contact multiple lenders to see what they can offer. In some cases, you may be able to get a loyalty discount if you apply with a lender your co-signer is already working with.
However, make sure to explore your options beyond banks and lenders you or your co-signer have had experience with. Before you opt for private lending, make sure you’ve exhausted everything that federal aid has to offer. Keep in mind that private loans are much more expensive to pay back than federal loans.
Besides, there are many programs that help students pay off or extend federal loans. There are no such programs to assist in paying back a private loan. With that said, keep in mind that private loans are a lot more serious as they don’t come with opportunities for forgiveness or other helpful features.
Lastly, when it comes to deciding how much you should borrow in private loans, the answer is simple - the least amount possible. Private student loans usually allow you to cover the total cost of attendance. However, it is in your best interest to minimize the amount you need to borrow for the sake of saving money on interest rates. Try to reasonably borrow as much money as you can afford to repay so you don’t end up struggling with the monthly payments later down the road.