Private Loans

Private loans are offered by private lenders and have no federal forms to complete. Eligibility for private student loans often depends on your credit score. As a general rule you should only consider a private education loan if you’ve maxed out the Federal Stafford Loan.

You should also file the Free Application for Federal Student Aid (FAFSA), which may qualify you for grants, work-study and other forms of student aid. Lower Division Transfer / General Education students should also compare costs with the Federal PLUS Loan, as the PLUS loan is usually much less expensive and has better repayment terms.

Loan Fees
The fees charged by some lenders can significantly increase the cost of the loan. A loan with a relatively low interest rate but high fees can ultimately cost more than a loan with a somewhat higher interest rate and no fees. (The lenders that do not charge fees often roll the difference into the interest rate.) A good rule of thumb is that 3% to 4% in fees is about the same as a 1% higher interest rate.

Be wary of comparing loans with different repayment terms according to the Annual Percentage Rate (APR). A longer loan term reduces the APR but increases the total amount of interest paid over the life of the loan. FinAid’s Loan Analyzer Calculator may be used to generate an apples-to-apples comparison of different loan programs.

What type of student loan is the best?

Private education loans tend to cost more than the education loans offered by the federal government, but are less expensive than credit card debt.

The federal education loans offer fixed interest rates that are lower than the variable rates offered by most private student loans. Federal education loans also offer better repayment and forgiveness options.

Since federal education loans are less expensive than and offer better terms than private student loans, you should exhaust your eligibility for federal student loans before resorting to private student loans.