Learn More About These Types of Student Loans and Forgiveness Options
Private student loans are offered by banks, credit unions and other private lenders. It can be a great way to pay for college after you have explored your other options. Many Private student loans are credit-based, so your lender will have to review your credit score and history before issuing an approval. Unlike federal student loans, some private student loans have variable interest rates that can go up. Just like shopping for anything else, it’s worth spending some time comparing interest rates and loan terms to find the best loan for your needs.
“In 2015, there are about 850,000 private student loans funded in America, totaling about $140,000,000,000 dollars (that’s $140 Billion) and about 15% of our total outstanding student loan debt.”
Difference Between Private and Federal Loans
- Federal student loans: These loans are funded by the federal government.
- Private student loans: These loans are nonfederal loans, made by a lender such as a bank, credit union, state agency, or a school.
Choosing a lender
There are Hundreds of Options for Private Loan Lenders. Choosing the Right one will be difficult but we have provided some tips on how to determine the best one for you.
Relevant factors include:
- Interest rates throughout the life of the loan – interest may accrue at one rate while the student is in school and another after graduation
- Payment options – lenders typically offer loans on which repayment begins immediately; loans on which only the interest must be paid while the student is enrolled; and loans with no payments until graduation or withdrawal from school. In the latter case, the unpaid interest while in school is capitalized (added to the balance due).
- Incentives – lenders may offer improved terms based on the student’s payment record
- Origination fees – lenders typically charge a fee for originating the loan; the fee is added to the principal (amount borrowed).
The total cost of the loan is documented in the Truth in Lending statement, which the borrower should receive when the loan is originated.
Are there any cons to Private Student Loans?
Private student loans are consider any student loan that is not a federal loan. These loans do not offer the multiple repayment options or borrower protection policys that a federal loan would. Also, Private Student Loans are not funded or subsidized by the U.S Government. Private Loans are only funded by credit unions, banks, or other types of private lenders.
The Private bank or lender,not the federal government, will set interest rates, loan limits, terms and conditions of your private student loans. Your ability to qualify for and borrow a private student loan is calculated on several factors that may include your credit history, whether or not you choose to have a co-signer, your co-signer’s credit history, your choice of school, and your choice of study.
While private student loans are all structured differently, they are generally very different from federal student loans and may include:
- Variable interest rates that can rise when interest rates rise during the life of the loan — which can substantially increase your payment and overall final payoff amount
- Less options to reduce or postpone payments
- Less flexible repayment options
- Many Private Loan Lenders Require you to make payments while in school
- Private student loans can have variable interest rates, some greater than 18%. A variable rate may substantially increase the total amount you repay.
- Interest may not be tax deductible.
- Private student loans cannot be consolidated into a Direct Consolidation Loan.
- Private student loans may not offer forbearance or deferment options.
What are The Perks to Private Loans
There are plenty of upsides to Private Loans if you’re not able to take out a Federal Student Loan. A private student loan can cover up to your school’s full cost of attendance, less other aid you may’ve received:
- A private loan will cover the gaps between your federal student loan aid package and your expenses.
- Most Private loans aren’t based on financial requirements like Pell Grants, Perkins Loans, and Direct Subsidized Loans
- You will not be required to complete the FAFSA or FSA ID to be able to apply for a private student loan.
- Private student loan lenders will let you apply with a cosigner to be able to increase your chances for approval and help you qualify for a better interest rate.
- Many lenders offer loans with no fees. Interest rates can be competitive with PLUS Loan rates, especially for borrowers or cosigners with very good credit scores.
- Many private student loan lenders will offer a cosigner release option that can enable you to remove the cosigner from the loan if you meet your lender’s requirements.
- Some Lenders offer no prepayment penalties.
- You can earn interest rate discounts if you qualify, Depending on your lender.
Private Student Loan Modification Programs
The Consumer Financial Protection Bureau (CFPB) saw a 38% increase in complaints regarding private student loans this past year. The majority of the complaints dealt with repayment options and lack of flexibility in restructuring loans, according to the CFPB annual report released in October. GoodbyeLoans together with specific private lenders are working to help students manage their private loan debt. To learn more about our loan modification programs, contact us (800) 940-8911.
Unfortunately for students, the private student loan industry is thriving, whereas students are the ones suffering. We need to change that. Private universities, public colleges and For-Profit schools are incredibly expensive. In our very humble opinion, the CFPB needs to crackdown on this HARD so students can get a quality education without sacrificing their financial health.
Though private student loan forgiveness isn’t an option for many, we encourage you to contact one of our Loan Consultants: (800) 940-8911. In some instances, lenders will have specific forgiveness programs available, but it depends on the origin of your loan, the terms of your loan and your financial situation. That said, there are other solutions that help people manage their private loan debt. If you’re dealing with seemingly insurmountable debt and monthly payments are exorbitant, you do have other options. Look into private loan consolidation programs or loan modification programs.
Who should consolidate?
Private Student Loans cannot, in general, be consolidated with federal student loans. The low interest rates on federal consolidation loans are not available to private education loans. Nevertheless, there are several options for refinancing private education loans.
The programs are best for people with strong credit and large loan balances who desire a lower monthly payment as well as people who have loans from multiple providers (but who still have strong credit). Keep in mind that a new loan with longer repayment means more interest accrues and the overall cost of the loan will be higher. If, however, you plan to pay it off sooner than the term of the loan and want a lower payment in the meantime, it might make sense to consolidate.
Private Student Loans Consolidation Programs
Student loan consolidation is akin to any other type of loan program where you have several different loans and you combine them (consolidate) into one payment. This is an ideal option for people who want to reduce their monthly payment and interest rate, though the terms of payment could be greatly extended. Once private student loans are consolidated, it’s very important to stick with your plan.
Since most private education loans do not compete on price, a private consolidation loan is merely replacing one or more private education loans with another. So the main benefit of such a consolidation is obtaining a single monthly payment. Also, since the consolidation resets the term of the loan, this may reduce the monthly payment (at a cost, of course, of increasing the total interest paid over the lifetime of the loan).