More Useful Financial Aid Information: Private Educational Loans

FINANCIAL AID INSIDER
For the week of March 17, 2013

Because institutional scholarships awarded to accepted students (based on their talent, need, high school grades or ACT/SAT scores) may only cover a percentage of college costs, Financial Aid Insider offers tips and information about lesser-known sources of student financial assistance.

This issue: Private Education Loans
Based on information on the web at: www.finaid.org

• Private Education Loans help bridge the gap between the actual cost of your education and the limited amount the government allows you to borrow in its programs.
• They are offered by private lenders; there are no federal forms to complete.
• Eligibility for private student loans often depends on your credit score.

Private Education Loans vs. Federal Education Loans

Some families turn to private education loans when federal loans don't provide enough money or when they need more flexible repayment options.

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

Interest Rates and Fees

• The interest rates and fees you pay on a private student loan are based on your credit score and the credit score of your co-signer, if any.
• Generally, if your credit score is less than 650 (FICO), you are unlikely to be approved for a private student loan.
• It is better to apply for a private student loan with a co-signer even if you could qualify for the loan on your own. Just applying with a co-signer usually results in a slightly lower rate, as such loans are not as risky for the lender. Moreover, the interest rates and fees are usually based on the higher of the two credit scores. So if your co-signer has a much better credit score than you, it could result in a much lower interest rate.
• Parents who are considering an alternative education loan often also consider a home equity loan or a PLUS loan. PLUS Loans were discussed in issue #3 of the Financial Aid Insider. Request a copy by emailing finaid@lagrange.edu.
• A list of the most popular private student loans and private consolidation loans can be found here.

The next Financial Aid Insider will explore how to avoid Financial Aid Scams. 

LaGrange College Admissions & Financial Aid Team
finaid@lagrange.edu
(800) 593-2885