When it comes to financing your education, scholarships and grants will help you most in the long-term because they’ll never need to be repaid. But what should you do to fill any gaps that those awards don’t cover? Student loans become your next option.
Understand your options and student loan requirements
When you fill out your Free Application for Federal Student Aid (FAFSA), your eligibility is automatically determined for federal loans. Federal loans offer the lowest fixed interest rates and borrower protections like deferment and forbearance options, the ability to postpone repayment six to nine months after graduation, and extended- and income-based repayment plans.
Private student loans are also an option to cover unmet college costs. These are offered by banks and independent lending institutions, which have their own requirements for approval and individual interest rates, loan limits, processing fees and repayment conditions. To get a private student loan, you must apply for the loan with a specific bank or financial institution.
How to apply for a private student loan
Banks and other private lenders typically make applying for student loans easy, with many offering simple online applications. But it’s important to carefully consider all aspects of the loan that is being offered before signing an agreement. You can easily compare lenders online before starting an application to see which can offer you the best deal.
Private student loan approval requirements
Lenders require a number of things in order to provide you with funds for college. To qualify for a student loan, you will need to show proof that you are enrolled at an eligible school. You must be a U.S. citizen or permanent resident and be of legal age as defined by your state of residence. You will need to provide information about your tuition and other fees, as well as an estimate of the financial aid you are already approved to receive.
You will also need to prove sufficient income, employment and credit-worthiness – criteria often difficult for college students to meet. If that is your case, you should apply for a private student loan with a co-signer. While it is possible to qualify for a private student loan without a co-signer, there are additional benefits to having one.
Applying for a private student loan with a co-signer
To help you qualify for a student loan, a parent, spouse or family friend can co-sign the student loan application with you. Your co-signer agrees to share the responsibility for repaying the loan if you are unable to make those payments. A cosigner must:
- Have a verifiable income
- Show a good credit history of borrowing, charging and repayment with few or no late payments on their credit report
- Exhibit no excessive delinquencies, judgments or bankruptcies pending, filed or discharged in the past two years
- Have no prior student loan defaults
- Be a U.S. citizen and at least 18 years of age
Even if you can get approved for a private student loan without a co-signer, you may want to add one to help reduce your interest rate. Many private lenders will allow a co-signer to be released from the loan once a total of 24 consecutive, on-time payments have been made.
How much can you borrow?
While some lenders restrict private student loan borrowing to your total cost of attendance minus financial aid, others simply have a yearly loan cap, leaving it up to you to decide how much debt is too much. Remember, you want to borrow only the amount you’ll need – not the maximum you can get – or you’ll be faced with a major debt burden down the road.
When do you have to start paying your student loan back?
The grace period on a private student loan depends on the lender and your loan contract. Some private student loans have a short grace period, allowing you to defer payments until after you finish school. Other student loans require repayment immediately after the funds have been disbursed. The loan agreement spells out all the specifics about when payment will begin.
What happens if you can't pay back the loan?
First, consider the positives of on-time student loan repayment: You effectively build your credit. But if you find making your payments becomes difficult, contact your lender. You may learn about options that make repayment more manageable.
Do not ignore your payment requirements. Late payments can be reported to all consumer credit reporting agencies, which can adversely affect your credit score. If you stop making payments, after 120 days your loan is considered in default and your lender can demand immediate payment of the full balance of the loan, seek repayment from your co-signer, refer your account to a collection agency, charge additional fees and report your default to credit bureaus. Finally, your student loan debt cannot be dismissed, even in bankruptcy.
Your guide to private student loans
Get all the information you need about private student loans, for free, in our easy-to-read guide. And when you’re ready, easily compare private student loan options online.