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Private Student Loans

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Private Student Loans

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Private Student Loans

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Private Student Loans

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Private Student Loans

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International Student Loans

Private Student Loans

The annual Open Doors Report published by the Institute of International Education (IIE) in November, 2020 reveals that the number of international students studying at colleges and universities in the USA in the past school year (2019/2020) was 671,616 – an 8% increase from the previous year. The majority of these students come from India,...

Private Student Loans

Parents who have a higher income may opt for a private student loan. Many banks, credit unions and financial institutions offer a variety of private student loans. The terms and conditions tend to be more flexible than the federal government loans. Private loans have higher interest rates and loan fees; they usually require a credit check.

While most public loans must be spent at an accredited post-secondary school where the student makes progress towards a certificate or degree, a private student loan can be used for other purposes:

  • Bar Study Loan can be used for living expenses as graduates prepare for the legal exam
  • Residency & Relocation Loan for medical and dental student expenses during residency, travel and board exam preparation
  • Studying abroad
  • Purchasing a computer
  • Previous school charges

Banks, credit unions and even online financial institutions are the sources of private loans. Most major banks have a tremendous variety of private loans to choose from. Financial institutions will analyze income and assets during the application process; good credit is a requirement for qualification.

Most of the private student loan interest rates are based on a fee of 1 to 2% added onto the LIBOR or Prime interest rates. Some private loans have minimum loan amounts. The most common annual loan limit is figured be subtracting other forms of Financial Aid from the Cost of Attendance (COA-AID). Typically, the length of repayment for private loans is from 10 to 25 years.

Borrowers should compare all of the details – annual and cumulative loan limits, interest rates and fees. The advertised rate usually applies to people with the best credit. Amounts available might increase year-by-year of stay in college due to expected inflation.

School approval is required for some private loans. Some private loans are geographically-based on the address of the student’s family or the college. Some require cosigners. Some can be deferred with continued education.

Families, who are considering private loans, should still apply for financial aid using the FAFSA because some grants and scholarships might reduce the “unmet need.” Financial institutions will use the FAFSA as a barometer for private loan approval. Families can always decline a financial aid package if they prefer a private student loan.

Private Loans

The private student loan is offered by private financial institutions or banks; and they are credit-based. In addition to federal assistance, private student loans can often be obtained by students to pay for costs above and beyond what the government is willing to fund.

Private student loans differ a lot from federal loans. Whereas the interest rate for federal loans is lower and set at a fixed rate, private loans have higher interest rate, variable interest rates and inflexible repayment programs. The loans are issued based on the credit history of the applicant and any applicable co-signer/co-endorser. This is in contrast to federal loan programs which deal primarily with need-based criteria, as defined by the Expected Family Contribution (EFC) and the Free application for federal student aid (FAFSA). Additionally, many international students studying in the United States obtain private loans (since they are ineligible for federal loans in many cases) with a co-signer that is a United States citizen/permanent resident.

The interest rates for private loans are consistent with the LIBOR Interest Rate (an economic indicator barometer used by the British Banker's Association in London) + 2.0% or the PRIME Interest Rate (an indicator to set rates in a range of financial products including the credit cards, mortgages, student loans, and more used in U.S.) – 0.50% without any cost. But keep in mind that these rates will also be adjusted to your creditworthiness and vary significantly by the lender