Student loans

Shopping for Private Student Loans | Company

With the start of the college fall semester just weeks away, there’s still time to shop around for more cash to cover the gaps in your financial plan.

One place to shop: the private student loan market.

Although interest rates have increased on these loans in recent weeks, parents with good or excellent credit may find that they can pay less than on federal loan programs. But there are pros and cons to this option.

As of mid-July, the average 10-year fixed-rate private student loan rate ranged from 3.22% to 13.95%, according to data from Bankrate.com. Variable rate student loans – available only from private lenders – ranged from 0.94% to 12.99%.

In contrast, federal student loan rates for the 2022-23 academic year now stand at 4.99%, while parent PLUS loans are at 7.54%.

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While some experts say students should prioritize federal loans because they’re cheaper and have better repayment terms, private student loans provide financing for borrowers who have exhausted federal loan limits.

Private student loans — from a bank, credit union, nonprofit lender, or online only — do not require completing the FAFSA, or a free application for federal student aid.

In almost all cases, undergraduates will need to apply with a parent or other eligible co-signer who meets the lender’s income and credit score minimums. (Co-signers are also responsible for repaying debt if the primary borrower cannot.)

Perhaps a better strategy, parents with very good credit can apply for a loan in their own name.

Private lenders offer both fixed and variable rates, so think about your plan to find out how quickly the loan will be paid off. With the possibility of interest rates rising slightly the rest of this year, it might be more prudent to lock in a fixed rate.

Experts say one of the biggest mistakes borrowers make is not researching the loan market for private loans. With so many lenders and so much information available online, comparison shopping has never been easier.

Many lenders offer tools on their websites that allow you to estimate the rate and term you might get based on your financial characteristics or those of your co-signer.

I recommend applying for multiple loans to compare interest rates and actual fees. For example, Sallie Mae offered a fixed rate of 3.75% to 13.72% depending on your credit score, while its variable rate loan ranged from 0.985% to 10.04%.

College Av offered fixed rates from 3.39% to 13.95%, while its variable rate started at 0.94%.

Among other details to consider:

  • If you have an existing relationship with a bank that provides student loans, that’s often the best place to start. You may be able to get a loyalty discount, usually in the form of an interest rate reduction, which can make your loan cheaper.
  • Compare the monthly payment and the total payments over the life of the loan. A longer repayment term will increase the total amount of interest due.
  • Are there assembly fees? Also find out about prepayment conditions and late payment penalties. What is the lender’s policy on renegotiation if you need to lower the monthly payment?
  • Can you sign up for automatic payments? If so, borrowers may be able to lower their interest.
  • Unlike the moratoriums currently in place on federal loan repayments, private lenders are not as lenient.

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