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Private Student Loans

We want the best for our children which means we want them to be able to attend the best college. But what happens when the financial aid letter comes and they’re short of affording their dream school? 

For most students, the Federal Loan program is by far the best option for the interest rate and repayment terms. However, the amount that can be borrowed is capped. It’s typically best to exhaust all federal loan options before pursuing a private loan.

Let’s assume that the student takes a government loan but a gap remains between the cost of college and available resources. If there is a gap between expected costs and the available resources, then it may be time to consider private student loan options.

Private loans are made by private organizations such as banks, credit unions, and state-based or state-affiliated organizations, and have terms and conditions that are set by the lender. These lenders apply credit tests to ensure that the borrower, and co-signer if one is required, will be able to repay the loan.  Borrowers with very good credit scores may achieve substantial decreases in the interest rate they pay.

Though a private student loan may be daunting, it’s one of the best options when looking to fill a shortfall after aid and federal loans. Making educational expenses on a credit card or through another line of credit offering may be more expensive over time.

When taking out private student loans, make sure you can answer the following:

  • How long will interest be charged?
  • What is the grace period on the loan, that is, how much time will pass between graduation and when the first payment is due?
  • Who will be the cosigner on the loan, if you need one?
  • Is a payment required while in school?

There are many factors to consider and like most aspects of the college process, the answers will differ among families. With some research, you’ll feel more equipped to make the right choices for you. Good student loan borrowing is about understanding the options and choosing the option that fits your needs best.


The content on this page provides general consumer information. It is not legal advice or regulatory guidance. We do not endorse or guarantee the accuracy of third-party information.

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