Paying for College - Private Student Loan Options

Paying for College - Private Student Loan Options

The student loan market has become quite hot lately with a bunch of new entrants offering competitive student loans. These new entrants go beyond credit score and history (which most students don't have) in determining loan eligibility. Below we list some of these up-and-comers, as well as some traditional banks in the student loan market.

These up-and-comers offer students who don't have a lot of credit history an opportunity to still receive a competitively priced private student loan.

Loan Rates: 5.78 - 6.09% APR

Origination fee: 2%

What sets it apart: The provide loans to graduates of certain MBA programs where they know the students have a good chance of being employed and staying employed.

Good for: MBA students or MBA graduates who want to refinance.

Loan Rates: 3.5 - 7.25% APR

Origination fee: 0%

What sets it apart: Earnest claims to look at more data points than just a credit score. They look forward at earnings potential and use predictive algorithms to determine whether a person is credit worthy.

Good for: Recent grads who do not have much credit history but have graduated with a marketable major from an accredited university.

Loan Rates: 3.5 - 7.750% APR

Origination Fee: 0%

What sets it apart: Uses factors such as merit and employment history as well as credit score to determine lending qualifications. Offers student loans, parents loans, and parent loan refinancing.

Good for: Parents or students with good credit.

Traditional Banks

A student who has built up good credit or who has parents who are willing to co-sign the loan can consider borrowing from a traditional bank. Some banks or loan companies that have more standard underwriting procedures are:

Loan Rates: Not listed.

Origination Fee: 0%

What sets it apart: Ability to defer payment until after graduation, choose payment timetable, choose principal or interest only payment.

Good for: Parents or students with good credit who want flexibility paying the loan back.

Loan Rates: 5.94% - 10.72% APR

Origination Fee: 0%

What sets it apart: This is a loan from one of the largest banks in the country. Typical bank credit standard apply and a co-signer may be needed. No payments required until six months after graduation but interest still accrues.

Good for: Parents or students with good credit who want flexibility paying the loan back. Co-signer will be needed for students with little credit history.

Loan Rates: 5.74% - 11.85% APR

Origination Fee: $0

What sets it apart: Choose from flexible repayment options, including deferring payments for six months after you leave school. Co-signer release available so that after 12 consecutive on-time time and principal payments made it's possible to get the cosigner released. This is at discretion of SallieMae.

Good for: Parents or students with good credit who want flexibility paying the loan back. Co-signer will be needed for students with little credit history.

Loan Rates: 5.99% - 11.49% APR

Origination Fee: $0

What sets it apart: Choice of in-school or deferred payment options. 1% cash reward for good grades.

Good for: Parents or students with good credit who want flexibility paying the loan back. Co-signer will be needed for students with little credit history.

Private Lender Borrowing for College Expenses

Borrowing from a private lender is sometimes a good option for those who need extra money for college or who want to refinance any loans they have. A host of new start-ups have moved into the lending space to help college students (who often lack credit history) borrow money based on a host of factors beyond just credit score. These lenders also work with parents and most also have refinancing products.

If a parent is willing to co-sign a loan, then many traditional banks also offer competitive rates on student loans.

Advantages of Using A Private Lender

The advantages of getting a private loan is often a more competitive rate. Private lenders can provide loans that are 1-2 percentage points lower than government backed loan packages. This results in a lower monthly payment and less interest paid over time. As one rule of thumb, if the size of a student's loans are comparable to their salary or projected salary after graduation, then this might be a good way to go or private loans might be a good refinancing option.

Private loans also often provide up to 100% of tuition needs, unlike government backed loans which many only cover a certain percent of expenses.

Disadvantages of Using A Private Lender

Private lenders do not have some of the flexibility of a government-backed loans. Government-backed loans allow the student to defer payments while active in school (interest still accumulates during this period), provide loan forgiveness if students go into certain areas of public service, and often have more flexible hardship provisions should students be unable to make a payment. But if you don't need this flexibility, the private loans are something you could consider.

Understand Your Options

Every student's payment options are different so students and parents should spend the time to understand and compare the different options. Doing so could save a significant amount of money.

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