How to apply for a private student loan
While the beginning of the academic school year isn't yet upon us, many students are spending their summer trying to set up their finances for the fall 2023 semester.
Students should start by filling out a Free Application for Federal Student Aid (FAFSA) to discover their federal aid options, including grants, scholarships and federal student loans. Federal student loans offer income-driven repayment plans and the potential for loan forgiveness programs.
Once you've exhausted your federal options, you may need to get a private student loan to bridge any financial gaps between your federal aid and your expected college-related expenses.
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Follow these steps to apply for a private student loan.
Generally, you must be at least 18 years old with a valid Social Security number and be a U.S. citizen or resident. International students may still qualify for a private student loan with a cosigner who is a U.S. citizen.
Of course, you must show you plan on attending an accredited college, university or trade school. Check with your lender If you're unsure about your school's eligibility status.
While federal student loans don't require a credit check, private student loans typically require a positive payment history and a minimum credit score in the upper 600s or higher. You might also have to meet the minimum income requirement to ensure you can repay your student loan.
"Before tackling a private student loan application, bear in mind that these loans are offered by banks, not the federal government," says Joe Camberato, CEO at National Business Capital. "Make time to research the lender's reputation before sharing your personal information."
If your credit history is minimal or you have below-average credit, you might need a cosigner to qualify for a private student loan. This scenario is quite common, with over 90% of undergraduate students needing a cosigner for private student loans taken out during the 2022-2023 academic year, according to data analytics firm Enterval Analytics.
"Adding a cosigner to a loan reduces the risk for the lender since the cosigner is responsible for repaying the loan if the borrower doesn't pay for some reason," says Leslie H. Tayne, founder and lead attorney at Tayne Law Group, a firm specializing in consumer and business debt issues.
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As with other types of loans, it's wise to shop around and compare private student loan lenders to find the best loan for your needs. Among other features, compare the interest rates, loan terms and eligibility requirements to find the right fit.
According to Jack Wang, a college financial aid advisor at Innovative Advisory Group, it's important to look at the stability of jobs in the industry you're studying when comparing different private student loan offers.
"Different student loans offer different terms related to repayment, forbearance and cosigner release," Wang explains. "A borrower should select the one that offers the most 'protection' even if the interest rate is slightly higher. For example, if the student is entering a field that is very volatile and prone to layoffs, they may want to get the loan that offers the longest forbearance period — just in case."
Once you've identified the private student loan offer that best fits your needs, the next step is to fill out an online application. Be prepared to submit documents and information about yourself, your school, you income and other information, including:
Tayne reminds prospective borrowers to "always be truthful in your application. The lender's underwriting team will verify all the claims you make. Discrepancies or errors can slow the funding process or cause your application to be rejected."
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If your private student loan application is approved, the lender usually sends the funds directly to your school. For their part, the school applies the money to your tuition and other necessary fees. Any remaining funds are disbursed to you.
"Make sure you're aware of the specific dates that your funds need to be disbursed to your school," advises Camberato. "Coordinate with your lender to avoid any delays or issues in the disbursement process."
Remember, although private student loans can help finance your higher education, it's also essential to utilize federal student aid such as grants, scholarships, and federal student loans. Federal loans offer unique benefits like income-driven repayment plans that can adjust based on your income.
However, private student loans are an excellent option when federal loans aren't enough to cover all of your college-related expenses, from tuition and books to food and housing. In that case, shop and compare multiple private student loan lenders to find the most suitable loan.