Financing Your Education

Congratulations on pursuing your post-secondary education! In the 2012-13 school year, there were approximately 21 million students enrolled in degree-granting post-secondary institutions for the fall semester.

Due to the sometimes high cost of education, many students require aid to help finance their studies. According to the College Board, student loans accounted for 39 percent of undergraduates’ funding and 64 percent of graduate students’ funding in 2012-13, with total education borrowing amounting to over $110 billion.

Student Loans – How They Work

When seeking an educational financial aid package, there are generally two types of loans available:
  • Federal
  • Private

Many people are familiar with federal student aid, which is supplied by the government in the form of loans, grants and tax credits. Federal loans are provided under a variety of programs, including Stafford, Perkins and PLUS loans. Students and parents wishing to take advantage of any federal student aid program must complete a Free Application for Federal Student Aid (FAFSA).

Private student loans (“PSLs”) are offered by banks, credit unions, state agencies and schools, and are often used to cover any shortfall between the actual cost of college attendance and the federal financial aid received by the student. Common features of private student loans include:

  • Risk-based interest rate dependent on your credit profile
  • Not subsidized
  • May require payments while you're still in school
  • May have prepayment penalties
  • May require a co-signer
  • Do not always offer forbearance or deferment options

Expenses Covered by Student Loans

Private student loans may be used to cover expenses related to attending a college or university, including both undergraduate and graduate-level programs. Such expenses include the student’s Expected Family Contribution (EFC), which is the amount, as determined by the Department of Education, that the student and family are expected to cover directly from their income, assets or other sources, as well as a variety of other expenses including tuition, books, fees, supplies, transportation, housing and meal plans.

Sources for Private Student Loans

You may be wondering what your options are for a private student loan. Banks, credit unions, state agencies and schools themselves may offer private student loans, including the following:

  • Acumen Student Loans
  • Charter One
  • Citizens Bank
  • Commerce Bank
  • Credit Union Student Choice
  • cuStudentLoans.org
  • Discover Student Loans
  • Fifth Third Bank
  • Graduate Leverage
  • Independent Community Bankers of America (ICBA)
  • PNC Education Lending
  • Regions Bank
  • Sallie Mae
  • SoFi, Inc. Student Loan Network
  • StudentLoans.com
  • SunTrust Education Loans
  • Union Federal
  • Wells Fargo Private Student Loans

Private Student Loan Eligibility

Private education lenders set their own requirements, and they can be more stringent than those of federal tuition financing. Typical private student loan requirements may include:

  • Full or part-time enrollment in an accredited college or university
  • Minimum age (often 18 or 21)
  • U.S. citizenship or permanent residency
  • Positive credit history
  • Minimum annual income
  • Debt-to-income limits (often 45%)

Private Student Loans and Your Credit Score

If a private student loan is part of your financial aid plan, one of the first things you'll want to do is check your credit score. The best deals on PSLs are often reserved for borrowers with higher credit scores. Alternatively, if your credit history is negative or non-existent, you may have difficulty getting approved. One way to improve your chances of qualifying for a PSL is to enlist a co-signer with a good credit score and history. Even if you think you can qualify on your own, having a co-signer can save you money on the interest rate or fees. Keep in mind that missing a payment or paying late will hurt not just your credit score, but also your benefactor's. This is not a route to take if you have problems managing debts.

Private Student Loan Interest Rates

Many private student loans come with variable interest rates. What this means is that the rate on a PSL could change over time, adjusting at set intervals. Variable rates adjust in accordance with movements in financial markets, going up and down over time. It's important to shop for student loans the way you'd shop for any large and important purchase, because interest rates and terms can vary widely between lenders.

Other Ways to Fund Your Education

There are alternatives available to taking out a private student loan, including grants, tax credits, deductions and work-study programs. Familiarize yourself with these 8 loans to pay for college, consider all your options and look for unconventional ways to pay for college.

You may also want to look into these strategies:

Use a Home Equity Loan to Pay for College
Taking out a home equity loan may help you if you don't qualify for a private student loan or if the interest rate for such a loan is high.

Use Credit Cards to Pay Your Tuition
Your credit card is likely to have a higher interest rate than a private student loan. However, if this is an option you'd like to consider, we can help you compare credit card offers.

Private Student Loan FAQs

Looking for additional private student loan help, advice, or assistance? Check out these frequently asked questions.

What expenses can be covered by a private student loan?
A private student loan may help cover the cost of tuition, fees, books, school supplies, transportation costs and room and board.

‚ÄčAre private student loans disbursed directly to the student?
Most student financial aid is not disbursed directly to the student. Funds are sent to your school and credited to your student account. Tuition, fees and other expenses are paid for, then you'll receive a disbursement check for the remainder.

Are private student loans easy to get?
If you have a credit score higher than 650 and a clean credit history, you stand a good chance of getting a private student loan. You may also be able to get one with a co-signer who also has a good credit score and history.

How much can I borrow?
Each lender imposes its own limits on how much you can personally borrow. Speak directly with a lender to determine that amount.

What is the maximum amount for a private student loan?
The maximum amount varies by lender. However, you may anticipate a max of $120,000 for undergraduate studies, $150,000 for graduate school, $175,000 for law school and over $200,000 for medical school.

What can I expect the interest rate to be?
Your interest rate depends greatly on your credit profile and the lender. It's important to compare rates and terms between several competing lenders. If you or your co-signer have a high credit score, you may obtain a lower interest rate. Most private loan rates are variable, which means they change periodically over the life of the loan.

What should I do if I have no co-signer?
Without a co-signer, getting private financing may be more of a challenge. Check your credit score and credit history upfront, and resolve any inaccuracies before applying. You may be able to boost your score by becoming an authorized user on a friend or relative's account (you don't actually use their account, you just get the benefit of their good payment history). If you have negative credit or very little credit, expect to pay a higher interest rate.

Are private student loans tax deductible?
If your income falls within government-defined limits, the interest you pay for your private student loan may be tax deductible. Speak with a tax specialist to see if you meet that threshold.

Do I qualify for a student loan if I'm a part-time student?
There are many private student loans for part time, three-quarter and full-time students.

What if I have bad credit?
If you have bad credit, you'll likely need to find someone with good credit to co-sign for you.

Are private student loans good or bad?
Private student loans can be an effective source of funding to cover the expenses necessary to attend school and get your degree. They typically come with less favorable terms than federal student loans, and may cost more than home equity financing. One advantage of private student loans is that they can be discharged or restructured in a bankruptcy if you qualify (check with an attorney familiar with bankruptcy laws in your state). Private student loans can be a helpful addition to your mix of funding, so consider them as part of your overall plan to finance your education.

Can I get a private student loan without a job?
Most lenders require a work history and have minimum income requirements. However, you may be able to get a private student loan without a job by adding a cosigner.

When do I have to start making payments?
This varies by lender. Most lenders require you to make payments while you attend school. However, keep in mind that even if payments are delayed until after you graduate, your loan accrues interest. So if it takes you two years to finish school, your balance upon graduation will be the amount borrowed plus two years of interest.

Can I consolidate my private student loans?
Private student loans typically cannot be wrapped into a direct consolidation loan while you're enrolled in school, although there may be exceptions or opportunities following graduation.

Private Student Loans: Bottom Line

Private student loans pick up where government funding leaves off, providing extra money to cover your educational needs. Keep in mind that they can cost more and be harder to get than government-backed financing. Try to minimize your college borrowing to keep your debt load manageable after you graduate. If your post-graduation finances take a bad turn, one advantage of private student loans is that they can be discharged or restructured in a bankruptcy (if you qualify), unlike government-backed student loans, which can be canceled only under a very narrow set of circumstances.

Costs, terms and interest rates for private student loans vary widely between lenders, so it's important to compare offers from several competing lenders to select the best loan for your circumstances.

Glossary Terms

Amortization
Amortization is the gradual reduction of a debt by periodic payments of interest and principal that are large enough to pay off a loan at maturity.... <a href='/glossary/what-is-amortization' title='See the full definition of Amortization'>read more</a>
Annual Percentage Rate
The annual cost of a loan to a borrower. Like an interest rate, the APR is expressed as a percentage of the loan amount. Unlike an interest rate,... <a href='/glossary/what-is-annual-percentage-rate' title='See the full definition of Annual Percentage Rate'>read more</a>
Borrower
A borrower is anyone who has to borrow money in order to pay for an expense. <a href='/glossary/what-is-borrower' title='See the full definition of Borrower'>read more</a>
Loan Program
A loan program is the interest rate feature and the terms of your loan. <a href='/glossary/what-is-loan-program' title='See the full definition of Loan Program'>read more</a>
Loan Terms
Loan terms are what is expected of the lender and borrower upon disbursement of a loan. <a href='/glossary/what-is-loan-terms' title='See the full definition of Loan Terms'>read more</a>
Monthly Payment
The monthly payment is how much a borrower will pay each month toward principal and interest on a loan. <a href='/glossary/what-is-monthly-payment' title='See the full definition of Monthly Payment'>read more</a>
Monthly Payment with PI
The monthly payment with PI is how much a borrower will pay each month toward principal and interest on a loan. <a href='/glossary/what-is-monthly-payment-with-pi' title='See the full definition of Monthly Payment with PI'>read more</a>
Principal
Principal is the amount of debt, excluding interest, remaining on a loan. <a href='/glossary/what-is-principal' title='See the full definition of Principal'>read more</a>
Rate
Rate is the amount of interest on the loan, expressed as an interest rate or annual percentage rate (APR) of the principal. Also called an interest... <a href='/glossary/what-is-rate' title='See the full definition of Rate'>read more</a>
Term
Term refers to the period of time between the beginning loan date on the legal documents and the date the entire balance of the loan is due. <a href='/glossary/what-is-term' title='See the full definition of Term'>read more</a>