Private Loans R-A-F: Requirements, Application, and Follow-Through
Written by Dongmiao Cui   



This article is ideal for students who are not eligible for federal loans or who needs more money than the limit of federal loans. 

Private student loans are offered by the financial institutions that underwrite the loans and determine the interest rates. Generally, you should only consider private loans if you cannot get one of the Federal Stafford Loans, Federal PLUS Loans, and Federal Perkins Loans. You should also file a FAFSA, which may still help you obtain grants and other forms of student aids.
 
Financial institutions that offer private student loans include bans (e.g. Citibank) and specialized companies (e.g. Sallie Mae). The biggest student loan lender is Sallie Mae, a former government sponsored entity that turned private. You are free to choose lenders but you can also refer to the preferred vendor list provided by your school.

You are encouraged to consider the following buying factors when you choose the lender.
  • Interest Rates: interest rates vary considerably across lenders. Interest may accrue at one rate during school and at another after graduation.
  • Origination Fees: lenders often charge a fee to originate the loan. The fee is added to the principal.
  • Total Cost: the total cost of the loan is included in the Truth in Lending statement. 
Note: A Truth in Lending (TIL) statement is created to help you decide if a loan is right for you. Lenders are required by federal law to provide a Truth in Lending document to all loan applicants. This includes the annual percentage rate, finance charge, amount financed, total of payments, payment schedule and other disclosures.
  • Incentives: Based on the student’s payment record, lenders may alter lending terms. 
You can find the detailed list of lender information at FinAid.
 
Tips:
  1. Remember that Private Loans are always riskier than the Federal Loans. You might want to use federal loans before considering a private loan. 
  2. Shop around and compare! Even when your school recommends certain “preferred lenders”, find out why. 
  3. Ask your lenders whether or not their discount options (and perhaps other terms as well) will change if your loan is sold to another company.
 


 
Last Updated on Thursday, 16 December 2010 21:07