Private Student Loans

Private student loans summary:

• Private student loans are flexible, but you have to have good enough credit to qualify.

• It’s possible to consolidate private student loans.

• If you can’t afford to repay your private student loans, it may be possible to negotiate for partial debt forgiveness.

Private Student Loans Definition and Meaning

A private student loan is a loan offered by private institutions, such as banks and credit unions, to fund educational expenses like tuition, books, and housing. 

Private student loans are an alternative to federal student loans. You can take out both. Private loans can cover needs unmet by federal aid.

Key Aspects of Private Student Loans

Interest rates, credit score checks, and consolidation are key aspects of private student loans.

Interest rates can be fixed or variable. Fixed rates stay the same, and variable rates may change during the lifetime of your loan. This differs from federal loan interest rates, which are always fixed.

Private lenders check credit scores. If your credit score or credit history doesn’t meet minimum requirements, you might need a co-signer. Co-signers with good FICO Scores could boost your approval chances or qualify for a better loan than you could get on your own.

Consolidation is possible. You could consolidate multiple private loans into a single loan with better terms to reduce costs, simplify payments, or both. You could also consolidate private and federal loans together into a new private consolidation loan but most people don’t. If you consolidate your federal student loans with a private loan, you lose income-based repayment options and other benefits that are only available on federal loans. Even so, if you can lower your interest rate by consolidating with a private loan and you don’t expect to need the federal benefits, you might be able to reduce your loan costs. 

Private Student Loans: a Comprehensive Breakdown

Private student loans are meant to cover what federal aid, grants, and your bank account won’t. Private loans differ by lender. 

Terms worth comparing include interest rates, repayment periods, and fees.

• Interest rates: Private lenders may offer fixed or variable interest rates.

• Repayment periods: Repayment periods can stretch from 10 to 25 years.

• Fees: Some lenders charge fees for making the loan, for paying off your loan early, or both.

Private student loan consolidation

Debt consolidation means using one new loan to pay off multiple smaller debts. The point of debt consolidation is to simplify or shrink monthly payments, and/or reduce interest rates. Some lenders may offer lower interest rates than the original lender, which could lower the overall cost of your loan.

You can’t use a federal consolidation loan to combine federal and private student loans. You can consolidate federal loans with other federal loans, and private loans with other private loans, or you can combine them with a private loan.

Private student loan settlement

If you need student loan debt relief, debt settlement could significantly reduce your debt. You negotiate with lenders to reach an agreement to satisfy your debt for less than the full amount you owe (and they forgive the rest). Some will agree to settle for 40% to 70% of your current balance. Lenders are more likely to settle when you’re behind on payments.

Debt settlement programs are a way to get professional help negotiating settlements. Trustworthy debt settlement programs only charge you after settling successfully.