What are private student loans?

Private student loans explained

Private student loans are similar to Federal student loans in many areas, but also have a few significant differences. They are called “private” (and sometimes “alternative loans”) because they are offered by independent lenders whose business is making student loans. They are not directly connected to the Federal government.

In recent years, there are many new student loans available, predominantly from private student loan companies. Their growth in the 21^st century has strongly outpaced Federal student loan growth – by an almost 4 to 1 ratio. Here is a brief overview.

• A standard FAFSA (Free Application for Federal Student Aid), required for all Federal student loans and sometimes a source of confusion for students and parents is sometimes not required.
• Loan proceeds are often given to the borrower, not directly to the student’s school, allowing you some discretion in their use.
• Although typically higher than Federal financing, interest rates offered are very competitive.
• Fast pre-approvals and timely closings are common.
• A grace period of up to 12 months after graduation is often available, providing a good window for borrowers to secure full time employment.
• Unlike most Federal financing, private student loans are subject to credit approval.

These are the primary differences from Federal student loans. Some appear to be positive, while others may prove a bit troubling. Needing a new student loan can be challenging anyway.

Private student loans serve an important purpose as a complement to Federal financing programs. New student loans provide the ability for otherwise financially challenged people to achieve their education goals.