Private loans are a source of funding meant to supplement, not replace, borrowing through federal student loans. For many students, federal loans aren’t enough to cover the cost of attendance. Here are some tips on how to select and apply for the right private student loan:
- Compare Private Student Loans – While federal loans are regulated to have the same rates and fees, private student loans come in all different shapes and sizes, so it’s important to compare different private student loans and find the right fit for your needs.
- Look at the APR – The Annual Percentage Rate (APR) of a loan bakes in all the costs associated with the loan so that you can compare one loan to another on an apples-to-apples basis. The interest rate alone is not an adequate point for comparison. For example, a loan with a high interest rate might look worse than a loan with a lower interest rate, but high fees on the lower-rate loan mean that it might actually be more expensive. The APR would reflect this difference.
- Compare the total cost of the loan, or “price” of the loan. Total cost of a loan is an estimate of the sum of the total payments you would be scheduled to make on a loan. Your need for $5k today, may cost you considerably more if paid back over the course of 10 years. APR expresses a similar point of comparison, but it’s often useful (and sobering) to see how much a loan might cost you over time. Remember – loans with shorter repayment terms will usually cost less than those with longer repayment terms.
- Apply with a creditworthy cosigner – a cosigner will almost always be required for an application to get approved. And not just anyone will fit the bill – the cosigner must have strong credit (credit score of 700 or higher) and verifiable income.
- Only borrow what you need. Not a penny more.