Private student loans are school loans offered by private lenders instead of the federal government. However, when looking for a loan, you may notice that there are different types of student loans from these private lenders, including degree specific loans, bad credit loans, and international student loans.
Here’s what you need to know about the types of private student loans and which one is best for you.
What is a private student loan?
A private student loan is a student loan offered by a private lender, such as a bank, credit union, government agency, university, or other lending institution.
Private student loans are generally best considered if you have exhausted your federal student loan allowance or if you can qualify for better terms through a private lender than what the Department of Education has to offer. Even so, however, many experts recommend using federal loans first.
Unlike federal loans, private student loans require a credit check when you apply. They also offer a range of interest rates, often both variable and fixed, and the one you qualify for will be based on your creditworthiness.
Private student loans generally do not offer access to income-based repayment plans or student loan forgiveness. That said, private lenders typically don’t charge an upfront loan fee like the Department of Education does. Plus, you can often borrow as much as you need, so they can be a good option if you can no longer borrow from Federal Student Loans.
Types of private student loans
There are a handful of different types of private student loans that you can choose from. Understanding student loans can help you get a better idea of which option is best for you.
At a basic level, private lenders can offer undergraduate and graduate student loans. However, some may also go above and beyond with a list of other degree specific loans for medical, business, dental, and legal programs.
You may even be able to get a loan to study for the bar exam or for your stay at a community college.
International student loans
International students can struggle to get approved for credit when they need it. If you are a permanent resident or have a certain visa, this may be all you need to get a student loan. But if not, some lenders specialize in offering student loans to international students who may not meet the standard requirements of traditional private loans.
If you are in need of student loans and your credit history is poor or nonexistent, your best bet is federal student loans, as they usually don’t require a credit check.
However, if you are in need of private loans, there are lenders who have less stringent credit requirements for students who have not had a chance to accumulate credit or for students or parents who need financing. but who do not have an excellent credit history. Just keep in mind that these loans generally charge higher interest rates than standard private loans.
State-specific loan programs
Many states offer private student loans through a specific state agency. Some examples include the Rhode Island Student Loan Authority, the Iowa Student Loan Education Lending, and the Bank of North Dakota.
These private student loans are generally reserved for students attending college within state borders, but perhaps residents who are studying in another state as well. Eligibility requirements vary from state to state.
Revenue sharing agreements
Income sharing agreements work differently from traditional student loans. Instead of making a fixed monthly payment based on your student loan balance and an interest rate, you will be paying a percentage of your income over a fixed number of years.
Before applying for a revenue sharing agreement, determine what the percentage of income will be and the repayment term. These agreements usually also have a salary floor and a payment ceiling to ensure that both parties are treated fairly.
Which private student loan is right for me?
When considering private student loans, take the time to assess your needs to determine which one is best for you. Compare all of the loan’s features, including repayment terms, costs, and interest rates, to save as much money as possible.
If you compare revenue sharing agreements with more traditional private loans, you can also use a online calculator to get an idea of what you will end up paying and how that compares to what you would pay in interest on another type of loan.
How to apply for a private student loan?
With Federal Student Loans, you apply by completing the Free Application for Federal Student Assistance (FAFSA). But with private lenders, you will apply directly to the lender of your choice to find out what terms you qualify for.
Most private lenders even allow you to be prequalified with a simple credit check. This process does not impact your credit score, but it can give you an initial quote based on information the lender can see. Comparing the interest rates on private loans from several lenders can make it easier to choose the one that’s right for you.
Once you submit your application, the lender will provide you with either an approval or a denial. If you have been approved, the lender will share the loan terms with you. If you accept the offer, you will sign the documents and the lender will pay the loan funds to your school.
If you have been refused, you may be able to reapply with a creditworthy co-signer, which may improve your chances of being approved. Even if you can qualify on your own, a co-signer could help you get a lower interest rate.