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Private Student Loans

A private student loan is a financing option for higher education in the United States that can either supplement or replace federally guaranteed loans such as Stafford loans, Perkins loans and PLUS loans. These are unsecured loans with various options for repayment and may offer forbearance and deferral options.

Interest rates are set by the financial institution that underwrites the loan, typically based on the perceived risk that the borrower may be delinquent or in default of payments of the loan. The underwriting decision is complicated by the fact that students often do not have a credit history that would otherwise indicate creditworthiness. As a result, interest rates may vary considerably across lenders.

In fact, many of these lenders have specific areas of their websites dedicated to student loan programs, offering advice and options for your review and consideration. Interest rates will vary by lender and program and will probably be higher than those attached to federal and state issued loans; however, as part of a private student loan program, the interest rates should be lower than a standard personal loan. Best of all, the use of these loans is not limited to tuition and can cover the cost of books and other materials, student housing, and even travel to and from campus (or travel involved in internship programs).

In a nutshell, no. Private student loans are aggressively marketed to students to help cover tuition, books, living expenses, and even spring break. Private student loans are directly payable to the students, not the college itself, so many students like the flexibility they offer. The problem with private student loans is that you don’t get a locked-in interest rate, and the interest rate is usually very high.

Private student loans are an option for students that need extra financial assistance when federal loans just don’t cover the cost of college.

You’ll find private loans for a variety of students:

Undergraduate private loans
Graduate private loans
Med school loans
Law school loans
Bar exam loans

Bad Credit Private Student Loans

Private student loans for bad credit are honestly pretty hard to come by. For that matter, as you probably know, getting loans at all with bad credit is very difficult. However, there are some options available for those that are really willing to look hard for them.

For most people that have bad credit, getting a private student loan will require finding a cosigner. For the most part, there won’t be any other options for you. Think about it this way, how is that bank going to make their money? They aren’t going to hand money to a person they can’t trust, and bad credit tells them that they can’t trust you.

Interest Rates

Private Loan rates rise and fall with the economy and vary from lender to lender. Each student lender sets their own interest rate and chooses what kind of borrower benefits their customers will receive. In contrast, federal loans taken out after July 1, 2006 are fixed at rates determined by the government (currently 7.90%- 8.50% for PLUS and 6.0-6.8% for Stafford Loans). The interest rates on private loans are typically higher than those on federal loans, but lenders may choose to lower their rates or increase borrower benefits if they choose to do so.

Repaying Private Loans

Realize that many private loans commence repayment immediately, while you’re in school. You need note just how much you will be expected to pay each month. If the payment amount exceeds what you can afford, speak up! Never sign a loan that you cannot reasonably afford. You can get a college education, but making foolish money decisions will get you nowhere fast.

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