March 31, 2023

Private Student Loan

When Should You Apply for a Private Student Loan

Students should only apply for a Private Student Loan if the Federal Stafford Loan has been depleted. In addition, a FASA should be filed. This could possibly qualify the student for grants, work-study programs and additional forms of aid. Also, an undergraduate student should gather information and compare the costs with the Federal Plus Loan which has a lower repayment rate.

Fees on a Private Student Loan

The fees on a Private Student Loan can get a bit confusing. The fees charged can substantially raise the loan costs. Keep in mind that a lender that doesn’t charge fees adds these fees to the interest rates. 3%-4% in fees equals a 1% higher interest rate.

Interest Rates on a Private Student Loan

Top notch Private Student Loans will charge interest rates of LIBOR + 2.0% or PRIME – 0.50% and no fees charged. The rates are for applicants who have perfect credit as well as a cosigner who also has excellent credit rating. It is not known how many applicants may qualify for the lowest rates. About 20% of the borrowers for the Private Student Loan are in the top credit level. Loans that are attached to the LIBOR index are preferred to the ones that are attached to the Prime Lending Rate as the spread between the two have rapidly growing over time.

What Expenses are Not Covered with a Private Student Loan

Private Student Loans do not cover expenses covered by bar exam fees for graduates of law schools or for residency costs incurred by medical students. There are, however, two other Private Student Loan programs that cover these costs.

The private Study Loan covers the fees for the Bar Exam as well as the review course for the Bar Exam. It also covers any living expenses incurred while studying for the Bar Exam.

For those studying in the medical and dental fields, the Residency and Relocation Loan covers travel expenses for interviews, the cost of finding a residency, any relocations costs and board exam costs.

Instead of keeping fixed interest rates, the Private Student Loan does not have the flexible repayment options and the interest rates fluctuate. The Private Student Loan also does not have borrower protection plans offered by federal loans and has also been compared to credit cards. This is because of the higher interest rates.

Why is There an Increase in the Number of Private Student Loans

The past volume of the number of applicants for the Private Student Loan dropped heavily in span of 2008-2010 but is ready to make a huge comeback. This is due to the reduction of federal funding for education among private institutions.

The Private Student Loan is not a federal student loan which is dependent on government funding. Rather, the Private Student Loan is dependent more on banks and is a credit-based loan. The Private Student Loan carries much higher interest rates than the more traditional federal student loan.