We did not realize until our last post that so many of you were unfamiliar with the fact that you had the option of applying for a private student loan! We are happy to have been able to educate you on this topic. There were quite a few specific questions we received in regards to private student loans. We will answer them today. If there are any other questions you have, please let us know.
To start, how interest rates are determined was a question we received multiple times. Both variable and fixed interest rates are normally offered. It is determined based off of the credit score of the borrower. (This is where having a co-signer can be helpful.) Just like other loans, if you have above average credit, you will likely receive a lower interest rate. If your credit is below average and worse, your interest rate will be higher.
There are some private student loans available where deferment or forbearance is an option. However, if your loan is deferred, you will still accrue interest on the loans. Every situation is a little different so be sure to ask what would happen, interest wise, if your student loan was deferred. Most likely, your suspended payment will get added to your principal. By doing this, your monthly payments will increase once your repayment starts.
There are other fees associated with a private student loan. These fees might be a loan application fee and a loan origination fee. Also, you might be responsible for a late fee if your payment is late one month (or multiple months.) Be sure to ask how you pay these types of fees. For example, will they be added on to the principal of your loan or are you responsible to pay them the following month?
A “co-signer release” is something we want to bring to your attention as well. There are some private loans that release the co-signer from the agreement after the borrower makes a certain number of payments. This is likely something a potential co-signer would find to be very helpful to them so there is no potential that their credit would be negatively affected.
Again, if there are any other questions you have that you think others might find helpful, please do not hesitate to ask. We are here to help.