Private loans are unsecured loans with various options for repayment and may offer forbearance and deferral options. Interest rates are set by the financial institution that underwrites the loan, typically based on the perceived risk that the borrower may be delinquent or in default of payments of the loan. The underwriting decision is complicated by the fact that students often do not have a credit history that would otherwise indicate creditworthiness. As a result, interest rates may vary considerably across lenders.
Because private student loans are subject to special treatment in the event of a personal bankruptcy, students may not incur a total debt in excess of the cost of attendance, taking into account scholarships, fellowships, federal loans and private loans.
A number of financial institutions offer private student loans, including large banks (e.g., Citibank, Chase, Bank of America, and Wachovia) and specialized companies (e.g., Sallie Mae, MyRichUncle, Astrive Student Loans, Act Education Loans). Of course, borrowers are free to obtain loans wherever they can find the most favorable terms.
Buying factors include: · Interest rates throughout the life of the loan - lenders may accrue interest at one rate while the student is in school and another after graduation · Payment options lenders typically offer loans that are payable immediately, interest-only loans while the student is enrolled, and no-payment loans until graduation · Incentives lenders may offer improved or tougher terms based on the student's payment record · Origination fees lenders typically charge a fee for originating the loan that is added to the principal of the loan. · The total cost of the loan is usually document in the Truth in Lending statement that is issued when the loan is originated.
Students should determine the best way to finance their college education; they should consider the full range of student financial aid options available. Private student loans can be used either alone or when federal loans, grants and other forms of financial aid are not sufficient to cover the full cost of education. These are loans that are not guaranteed by a government agency and are made to students by banks or finance companies.
Private loans generally offer higher loan limits than direct-to-student federal loans, ensuring the student is not left with a budget gap. But unlike to-the-parent government loans, they generally offer a grace period with no payments due until after graduation. This grace period ranges as high as 12 months after graduation, though most private lenders offer six months.
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