Private Student Loans

With the increasing cost of education, many students find that the funds they receive from financial aid sources (grants, scholarships, work-study and federal loans) do not cover their entire financial need.

Fortunately, private loans, also known as alternative loans, can help fill the gap between financial aid and what your education really costs. Private lenders typically offer these loans at a variety of interest rates and conditions. Since private loans are not guaranteed by the federal government, credit guidelines apply in determining your eligibility for private loans. It is in your best interest to research your options for private loans and compare lender rates, terms and conditions.

Private lenders only issue loans to students attending schools the lender has approved for educational loans. According to a 2009 study by the Government Accountability Office (GAO), private lenders may use non-individual factors such as school graduation rate, type of school, program length, and the cohort default rate, to determine if the lender will make funds available to students of a given school. Lenders reported that the most important factors in deciding if a school will be eligible for private education loans include longer programs of study, higher graduation rates, and low default cohort rates.

While lenders tend to use non-individual factors in making private education loan decisions due to the fact that many students lack a sufficient credit history for lenders to base loan decisions on, your credit score may still play a critical role in determining your eligibility for a private student loan.

Private student loans differ from federal student loans in that:

  • Private education loans tend to cost more
  • Federal student loans have lower interest rates
  • Federal student loans generally have more favorable repayment terms
  • Your credit score may be a factor in determining your eligibility for private student loans

You should exhaust all government-sponsored financial aid programs before applying and accepting a private student loan.