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Overview of Private Loans

Student borrowers can apply for a credit-based Private, or Alternative, loan for additional assistance to meet educational expenses. Apply for these loans after you have already received the maximum financial aid award as a supplement to federal student aid. Do your research and shop around for the best terms and rates before borrowing. A good place for information before you start shopping is the www.finaid.org website. Also, check with the school's financial aid office for private loan comparison tools or preferred lender lists to get started.

Remember: Private loans often do not have the same benefits as federal student loans, so make sure you fully understand the nature of your loan contract before you borrow.

Shopping for a Private Educational Loan

Knowing the basics of Private loans is the first step in the research process.

  • Private lenders, such as banks and credit unions, usually offer these loans at a variable interest rate which can start out low and climb to a high rate. This rate can rise or fall every month, often without a maximum limit.
  • Check the loan benefits for loan fees, repayment schedule, interest rate, and potential penalties when shopping for a private loan.
  • Be aware that in-school deferment or financial hardship repayment options are typically not offered by private student loan lenders.

Credit Approval

Dependent undergraduates often need a co-signer, or endorser, in order to get a credit approval for a private student loan. Being a cosigner is taking on a big responsibility. If the borrower refuses to pay the loan, the loan becomes defaulted. The co-signer is then responsible for paying back the loan in full. Before taking out a loan, make sure you can repay it.

Borrow Smart

Borrow only the amount needed to pay remaining educational expenses. Once the loan is approved, school certified private loan funds are sent directly to the school and the student's account balance. If there is no bill at the school, the remaining amount is refunded to the student borrower. Manager the refund wisely. Repay the loan as soon as possible and on-time to avoid expensive late fees. Be aware of the repayment schedule, and budget student loan payments after graduation.

Warning: Private/Alternative loans are being marketed aggressively to college students. Review the loan terms and disclosures carefully before deciding whether to accept a private loan. Be sure you understand what you have to repay and when. Always consider federal student loans first.

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