When it comes to financing your education, there are many ways to cover the costs. Oftentimes, students whose parents aren't able to cover the entire cost of college or can't finance it alone turn to a private lender to cover the rest. Loans can help cover the cost of just about any college or university related expense such as all or some of the tuition, textbooks, housing, supplies, transportation or other school related fees. Taking out a private loan ensures you have all the necessary resources at hand for a successful academic year.
Private loans are different from Federally funded loans. Private lenders are often banks, credit unions, or other financial institutions and usually require a co-signer if the primary borrower does not have much credit history to speak towards their fiscal responsibility. Usually a parent or guardian co-signs as a way to increase your chances of approval and potentially get you a lower interest rate depending on how stellar their own credit history might be. However, if you default on any of your future payments this makes them responsible in your absence. Usually it is recommended to try and cover as much of your financial costs as possible with scholarships and federal aid before turning to private lenders.
Private lenders can set their own interest rates according to each individual's credit background. While two people might be approved by the same lender, they each might receive different rates. Unfortunately, most lenders assign the best rates to those with already established clean credit histories. If this is not your case, be prepared to pay more in interest. Professionals in the field estimate that only 20 percent of student borrowers get the best rates available.
The interest rates that will be more in your favor are ones with a rate of 2 percent set by the London Interbank Offered Rate, or LIBOR, which is a standard, daily baseline by which banks set their own interest rates, or a Prime Lending Rate of .5 percent with no fees. Most private loans will be similar in rates to those of the federal government with which they compete to secure borrowers. Generally, it is recommended to look for LIBOR associated loans rather than Prime.
Regardless of higher rates, there are still some benefits when it comes to financing your education with a private loan. Most importantly, you are able to take them out whenever whereas federal loans are stricter about when you receive funds. If you need access to money before the start of the semester to secure a living space and supplies, a private loan can help you out.
Another great benefit to private loans is that they don't privilege applicants based on need. Most students entering higher education can't afford all the costs of college, but may not necessarily be considered financially needy by the government. In this way, private loans can truly broaden educational horizons for those seeking the university experience.
Private lenders to consider include Wachovia, Sallie Mae, Bank of America, Chase, and Citibank.