What are Private Student Loans?
Private student loans. What are they, and what do you need to know about them? We’ll take a look below.
What are Private Student Loans?
Each spring, families begin to hear back from colleges and universities. They will receive different offers such as scholarship awards and need-based financial aid packages. Once families compare offers and decide on a school, they will know how much they have to pay for the student to attend school.
In an ideal scenario, this remaining balance is manageable. However, sometimes families are left with a significant bill, more than they can pay out of savings or from their income. There are different options to pay the remaining difference, including payment plan options, lump sums out of pocket, or winning the lottery (kidding?). A common source of funding for families is a student loan.
Student loans take many forms. Direct loans through the federal government are made available by simply completing the FAFSA. However, these only cover a relatively small amount of the cost of college. Beyond the Direct loans, families can look to Parent PLUS Loans or alternative loans through private banks.
Alternative loans come in many shapes and sizes. Unlike the Parent PLUS Loan, a pass/fail loan that is the same rate and fee for everyone approved, alternative loans are individual to the applying family. The student will be applying for the loan, but the bank will most likely require a co-signor. This DOESN’T have to be a parent. Instead, it must be any credit-worthy co-signor.
Once a family applies, they will receive a response from the bank. If they are approved, the family will be notified of the interest rate and other information regarding their loan.
Families can shop around for rates and loan terms that best fit their situation. It’s important to look beyond the rate to the loan fees and terms, as these will also vary from institution to institution and impact the amount that families pay over the life of the loan.
Once a family has decided which loan provider to use, they will apply and accept the offer. The loan will then disburse to the college or university the student is attending. The money doesn’t get sent to the student or parent.
Families will need to apply for private student loans each school year. For example, if the student attends college for four years, the family would need to apply four times for the loans. It’s not a situation where the family is approved once for four years.
Which type of loan is best for your family? If you have any questions regarding private student loans or other options, don’t hesitate to reach out to us using the contact form on the website or financialaidcoach@gmail.com.