If you still need additional money after taking out a federal student loan, private loans are another option to consider.
It’s a good idea to find out your credit score before applying for a private student loan. If your credit score is good to excellent, you might be able to get a loan with a lower interest rate than someone with average or bad credit. The low end of interest rates for private student loans is around 2.5%. Interest rates can be as high as 12%.
If your credit is average, your parents financially support you, or your income is not high enough to qualify for a private student loan, you may need a cosigner. On the plus side, if your cosigner has excellent credit, more favorable interest rates may be available. Lenders will consider the creditworthiness of both you and your cosigner. Good credit will result in a more favorable interest rate because the risk the lender is taking on is decreased.
To receive a private student loan, you’ll need to apply to each lender you choose, as private lenders do not have a one-size-fits-all application like the FAFSA. You will need to supply credit information, salary, and work history.
Private student loan lenders will look at your income, your ability to repay, and how much debt you have (which lenders call your debt-to-income ratio). They will loan you money only if you meet their requirements.
It’s a good idea to look at several different lenders when considering a private student loan. Interest rates vary, for one thing, and you want the lowest interest rate possible.
The type of interest rate offered is also a factor. There are two types: fixed and variable. Fixed means that the interest rate will always stay the same. If you lock in at 14%, your payments will always have that interest rate.