Have you maxed out your Federal student loan limit and need to borrow more to graduate? Finding a way to pay for school once your Federal loans are maxed out can be a daunting experience. Here are the basics you need to know about private student loans to keep your tuition paid until graduation.
What are Private Student Loans?
If you are close to maxing out the limits for student loans subsidized by the government, which are currently set at $57,000 for undergraduate and $138,500 for professional students, then you have options for additional borrowing.
Private loans are made by banks, credit unions, and Sallie Mae, and are unsubsidized by the government. These student loans are often more expensive than your Federal subsidized student loans. Loan approval is based on your credit history and meeting the requirements set by individual lenders.
If you plan on applying for a private student loan through Sallie Mae, your school's financial aid office can streamline the application process for you. If you apply through your bank or credit union, it's best to shop around as interest rates and terms can vary widely from one lender to the next.
Loan approval is based on your credit payment history, credit score, ability to repay, and by meeting the underwriting requirements set by individual lenders. If you have insufficient credit history or income a cosigner could help you meet the lender's requirements for approving your private student loan.
One advantage of private student loans is that there are no limits to how much you can borrow. These loans are not without risks, which is why it is important to max out your Federal student loans before relying on private loans to fund your education.
Making All of Your Payments On-Time Is Critical
Like any student loan, private loans must be repaid and there can be serious consequences to falling behind on your payments or defaulting on the loan. Setting up automatic payment with your lender could protect your credit score from late or missed payments. You could even receive a reduced interest rate by enrolling in your lenders automatic payment program.
One of the disadvantages of private student loans is that repayment programs vary by individual lenders and you may not be able to request a payment forbearance like you can with Federal student loans. If you miss payments for more than six months, then you risk defaulting on the loan which could have serious financial consequences.
Late payments may even affect your ability to borrow and damage your credit score. This could prevent you from borrowing to obtain a car loan or a mortgage to purchase a home. It is important to make sure your student loans, both private and federal, are affordable because they must be paid back. Student loans are may not be discharged in bankruptcy.
Private student loans are an excellent way to fund your education once you've maxed out your Federal student loans but are not without risk. As with any loan, borrowing responsibly can help you avoid serious consequences that could follow you for years.