Debt, Education 

Where Can You Find Private Student Loans?

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College GraduationWhen I went to graduate school at Syracuse University, I had a small scholarship, and federal student loans. However, even with these resources, I still didn’t have quite enough money to pay tuition for my Master’s program.

So I turned to a private student loan to supply the deficiency.

“After students have considered scholarships, grants and federal student loans, their next step is to find private student loans,” says Beatrice Schultz, a licensed College Planning Relief specialist and co-founder of Westface College Planning.

“Private loans come from many sources, including public banks, private group, or individual lenders,” she continues. “All will require a co-signer, ideally with good credit.”

Once you move into the realm of private student lending, your credit becomes more important. My private student loan was co-signed by my in-laws. I’m happy to say that they haven’t had cause to regret that decision.

From banks to credit unions to P2P lenders set up to match students with interested lenders, it’s possible to find private student loans. Unfortunately, though, you need to be careful. The interest rates and repayment terms on private loans aren’t as generous as what you find with federal student loans.

There are also networks that can help you find private student loans, if you are having trouble getting a loan through your bank or credit union. Schultz recommends SoFi (which connects students and alumni through a lending pool) and Private Student Loan Marketplace (which allows direct side-by-side comparisons of loan rates and terms). She also suggests that students consider student loans based in religious organizations.

You can also get help through Slice Finance and TuitionU, which are both social-based student lending web sites. Crowdfunding is moving into the student loan space — and why not? It’s a trillion dollar business now.

What to Look for in Private Student Loans

Many financial planners and college planning experts insist that there is no such thing as a “good” private student loan. However, if you have to get a private loan to close your college funding gap, you should be careful and shop around.

“When comparing loans, make sure to consider not only APR, interest rate, total cost, monthly payment, borrower benefits, fees and repayment options, but also co-signer requirements,” Schultz says. “Also find out how soon after the student starts paying the loan back a co-signer can be removed from the debt.”

It’s important to keep in mind that your co-signer is on the hook if you default, so you need to be considerate to your co-signer.

Bottom Line

Private student loans should be your last resort. You should do what you can to plan ahead by saving up in a 529 plan, and then try for scholarships and grants. After those routes are exhausted, turn to federal student loans. You can also turn to family and friends to see if they can help you. Finally, if there is still a funding gap, private student loans can provide a bridge.

Private student loans don’t come with the same protections and terms that you get from government resources, so it’s important to think long and hard before turning to them.

Image: Rennett Stowe

{ 4 comments, please add your thoughts now! }

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4 Responses to “Where Can You Find Private Student Loans?”

  1. Michael says:

    Remember many private loans are not deferable due to joblessness, do not quality for IBR repayment, contain penalty rates and are not dischargable in a bankruptcy. If you fall behind, you can be on the hook for 18%+ interest for a very long time on a very large amount. In the recent job market this happened to a lot of young people disrupting their life and has followed older students into their Social Security years.

    These loans are a lot like the toxic mortgages a few years back. The payment can blow up with penalty rates, are hard to get out of during periods of joblessness and are often taken out by borrowers who are not as educated on finance or overly optimistic about repayment. (On the last point, at 20 years old I was way more optimistic and not nearly as financially educated as I am at 40 🙂

    Please do anything you can to avoid them, move home, change schools, ride mass transit, take internships/ student employment, avoid majors with marginal job propects etc. As the article says, “as a last resort”.

  2. admiral58 says:

    check a lot of bank rates and do your hw

  3. I agree. Private loans are almost always worse than federal loans. Sadly, I’ve seen too many places that make the argument that they are better, but if you look hard, you will find banks and other commercial lenders are behind this misinformation.

  4. educate4less says:

    “Also find out how soon after the student starts paying the loan back a co-signer can be removed from the debt.” The answer to this – and far too few naive “college planners” know it – is NEVER. Why would a lender EVER take a co-signer off a loan and reduce their ability to collect?

    “Fixed-rate” private loans are only fixed for as long as the lender wants them to be, based upon this clause in the loan document: “Lender maintains the right to change any and all terms of this agreement at any time.”

    Just say no.

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