Private educational loans are offered by private commercial lenders for the purpose of financing your college education. The interest rates on these loans are determined based on your credit rating and debt-to-income ratio and the credit of your co-signer. Because of the debt burden associated with borrowing private loans, you are encouraged to make an advising appointment with an Student Financial Services (SFS) counselor before borrowing these funds.
Consider the following before borrowing private loans:
- Take time to carefully review your family's financial situation and identify every financing resource available. Be sure to explore all options before applying for a private loan.
- Private loans should be the last option a student should consider. The Federal Direct loan program is often a better option. If you need to borrow a private loan, be sure that you have first borrowed the maximum Direct loan for which you are eligible. More information about the Direct Loan program.
- Determine the total amount of educational debt you and your family are willing to accumulate during your college enrollment. Take into consideration the four years worth of loan debt, as well as what income you may realistically expect after graduation.
- Thoroughly review and decide how important the various features of a loan are to you before choosing one; these features include fees, grace periods, lengths of repayment terms, how future interest rates are determined, co-signer release availability, borrower benefits and incentives.
- Consider how often the interest rate may change. Some loans change every three months (quarterly). Some loans change their interest rates every month. During a time of rising interest rates having your rate change on a monthly basis will cost you more money.
- Think about the length of your repayment period and how your monthly payments will be effected. If you plan to borrow more than $20,000 in private loans for your undergraduate education, you should consider a loan which offers a 15, 20, or 25 year repayment term. If you choose a loan with a repayment period of 12 or less years your monthly payment will be much larger.
- You may want a grace period (or time between leaving school and when monthly payments begin). Look for a private loan with a grace period.
- Some loans have a co-signer release option. This means that the co-signer can be released from the obligations of the loan after a period of time and the student borrower will remain as the sole signer on the loan. Be aware that to be able to release the co-signer, you must make a certain number of on-time payments before the lender will consider releasing the co-signer. Also, the student borrower needs to prove that he or she is able to make payments on the loan after the co-borrower is released. If this is an important feature for you, inquire about the number of on-time loan payments required to release the co-signer and how is the borrower determined to be able to make payments after the co-signer is released.
- Most loans have borrower benefits and payment incentives. Payment incentives include interest rate reductions after certain number of on-time payments, and interest rate reductions for automatic payments from a bank account. A word of caution about incentives linked to making a number of on-time payments: only a small number of borrowers actually benefit from this type of incentive because there may be a late payment made along the way. To ensure that payments are made on time, ask about paying the monthly bill using automatic payments from your bank account.
Recommended Private Student Loans
- A recommended lender list is a starting point when you are seeking an educational lender that offers a good combination of cost, convenience, and service. You are always free to borrow from any lender—whether on the list or not.
- Student Financial Services (SFS) selects lenders on the basis of value, reliability, and service when we create our lender list. We evaluate criteria such as rates, other borrower benefits, customer support, and technology. SFS has conducted an objective selection process for lenders. Please be in touch with us if you have any questions.
- Please visit our recommended lender list through ELM Select. This site gives you the ability to compare the benefits and services offered by each of our recommended lenders.