Private Education Loans
Private education loans are offered through a variety of banks and other lenders. Students must apply for these loans separately from their financial aid application. The best rates on private education loans generally are offered to borrowers who have good credit and/or who have a cosigner with good credit. When shopping for a private loan, it is important to look for a loan you can live with in both the short term and the long term. You may be repaying it for several years after graduation.Students are strongly encouraged to complete the Free Application for Federal Student Aid (FAFSA) first when looking into loan options. Stafford and PLUS Loans are processed first, and tend to have a lower interest rate, which may be the best loans for funding your education.Many families find that supplemental borrowing provides an important resource for financing educational expenses. The borrowing options described below may be of interest to those who:
- have little or no eligibility for need-based financial aid programs,
- need additional assistance to pay college costs after other forms of aid have been awarded,
- are classified as nonresident students and need additional resources to “fill the gap” between need-based financial aid and college costs, or
- have circumstances (e.g., a medical condition) leading to unusual costs above the standard cost of attendance budgets used by the Office of Financial Assistance (OFA).
About Private Education Loans
Private education loans are offered by many banks and loan companies. They are not part of the federal government’s loan programs. Many lenders will lend up to the amount of the student’s cost of attendance minus any financial aid he or she has received. Often there is a yearly and/or cumulative cap on the amount the student may borrow; sometimes this cap is set by the student’s school.
What to look for in Private Education Loans
Look for all of the following terms and conditions when shopping for a loan. Compare rates and pick the best loan for you in both the short-term, and the long-term.
Annual Percentage Rate (APR) – The annual cost of your loan including fees and charges in addition to interest. Compare these rates and shop around for the best one that you can get.
Repayment Incentives – Savings that reward borrowers who make payment on time.
Loan Limits – Annual limits or a total limit on what you can borrow.
Pre-approval – Approval may be quicker if it can be done over the phone or online.
Co-signer – A co-signer may or may not be required; a co-signer may help reduce the cost of the loan.
Interest capitalization – Interest incurred while you are in school may be added to your principle balance; it may be capitalized at repayment or annually, which is more expensive.
Repayment Schedule – Repayment may begin immediately or after you graduate or leave school.
Repayment Period – The length of time you have to repay the loan.
Comparison Chart (With Questions to Consider):
|Loan||Federal Direct PLUS Loan and Grad PLUS Loan||Private Educational Loan||Questions to Consider|
|Program/Sponsor||U.S. Department of Education (federally funded)||Various banks and loan companies||Will the company sell your loan to another company?How long has the company been offering student loans?|
|Eligible Borrower and Loan Amount||PLUS: Parent borrows on behalf of undergraduate dependent student enrolled at least half-time in a degree or certificate program. Parent and student must be U.S. citizens or eligible non-citizens. Student must not be in default on prior educational loans and must be making satisfactory academic progress. Student must complete the Free Application for Federal Student Aid (FAFSA).Grad PLUS: Graduate student who is a U.S. citizen or eligible non-citizen enrolled at least half-time in a degree or certificate program. Must be making satisfactory academic progress. Borrower must complete the Free Application for Federal Student Aid (FAFSA) to be eligible.Loan amount: Cost of attendance minus financial aid offered. No cumulative loan maximum.||Student who is a U.S. citizen or permanent resident.Loan amounts often are cost of attendance minus financial aid offered. Sometimes set by school. Often include a yearly and/or cumulative cap (can be as high as $250,000 for undergraduates).|
The majority of lenders require a minimum of half-time enrollment. OFA checks enrollment status at the point of disbursement, not when the loan is certified. Many private education lenders also require student borrowers to have a cosigner for their loan.
Advantages of Having a Cosignor
In addition to increasing your chances of getting approved for the loan, having another person cosign for your loan sometimes helps you get a lower interest rate and may reduce the time it takes to get the loan approved.
Private Loan Eligibility, Loan Terms, and Requirements
|Eligibility Criteria||Loan Terms||Additional Information/Requirements|
|• Non-need-based• Student must be enrolled at least half-time in degree program• Borrower must be a U.S. citizen or eligible noncitizen• Borrower may be required to have a cosigner||• Fees range from 0% to 12%, depending on borrower’s credit. Some have an origination fee.• Loan amounts often are cost of attendance minus financial aid offered. Sometimes set by school. Often include a yearly and/or cumulative cap (can be as high as $250,000 for undergraduates).• Interest rates generally PRIME -1% to +7.75% or LIBOR +1% to +8%• Repayment term ranges from 0 to 25 years, often depending on amount of loan• Interest rates, fees, and loan limits depend on credit history of borrow/cosigner, loan options, and repayment schedule. Having a cosigner may reduce interest rate and loan fees||• Students do not need to submit a FAFSA if they are not applying for any other aid.• The federal Truth in Lending Act requires students to submit a Private Education Loan Self-Certification Form to their lender.|
New provisions in the Truth in Lending Act, implemented in February 2010, have resulted in a number of changes in the process for applying for and receiving private education loans. Lenders who provide these loans must comply with the following requirements:
- Lenders must provide three separate loan disclosures to borrowers–one at the point of application, one when the loan is approved, and one before the loan is disbursed.
- A waiting period of three to seven business days is required between the time the borrower receives the final loan disclosure and the time that the loan is disbursed.
- Students must also sign a self-certification form and submit it to the lender before the loan can be disbursed.
Your lender should provide you with all of the information you need to know about these requirements.
The Self-Certification Process
You must submit a completed Private Education Loan Applicant Self-Certification form to your lender. Your loan cannot be disbursed until your lender receives it.
Your lender should provide you with a copy of the required Private Education Loan Applicant Self-Certification Form. Complete the form and return it to your lender as soon as possible. If you do not receive the form from your lender, you may download the form here. Contact your lender for your application ID or other identifier that will help to match the form with your application. This form is required by provisions in the federal Truth in Lending Act.
To complete the form, you will need to know your Cost of Attendance and your total financial aid package (estimated financial assistance). If you receive financial aid, this information can be found on your financial aid Award Letter through Student Self-Service portal. (For instructions on how to view your Award Notice, see the Understanding the Financial Aid Award Letter page.)
Cost of Attendance can be found at the top of your Award Notice and your total financial aid package (estimated financial assistance) in the Award Summary section at the bottom. To get your total financial aid figure, you need to report the amount in the Award Summary section under the Total line.
If you are not receiving financial aid, find your cost of attendance using our Cost of Attendance page.
How to Find and Apply for a Private Loan
If you are considering borrowing through a private lender, we encourage you to:
- Be sure you have exhausted all other possible sources of financial aid, including federal loans, first.
- Look for ways to reduce your expenses before you decide how much to borrow.
- Borrow only what you absolutely need.
- Ask questions and compare the rates and terms offered by different lenders. (See the Project on Student Debt’s list of questions to ask about private loans and student loan shopping tips.)
If you decide to pursue a private loan, you must apply directly through the lender. You are free to choose any lender you wish and the university will certify any application.
The university adheres to a Code of Conduct for Student Loans that prohibits inducements by private lenders. (Click here to access the UIS Student Loan Code of Conduct.)
For more information about the rates and terms offered by different lenders, see Student Lending Analytics’ Private Loan Options page. To compare the terms of loans you are considering (and to compare private loans with federal PLUS Loans, see the College Board’s Loan Comparison Calculator.
A Word of Caution to Private Loan Borrowers
UIS students should avoid lenders that do not require UIS certification of their loan application and, in general, should be suspicious of unsolicited loan offers. The UIS Office of Financial Assistance cautions students that “loan debt can accumulate quickly and result in a lifetime burden of high payments and credit denials for automobile purchases, credit cards, and home mortgages. Private loans also can reduce eligibility for more desirable federal, state and college aid programs. To avoid these problems, read and understand the terms and conditions of all loans.”
Typical Private Education Loan Payments
Typical private education loan payments are shown in the example below:
|Loan Payments||Undergraduate Students||Graduate Students|
|Interest Rate||APR||Monthly Payment||APR||Monthly Payment|
Undergraduate students: This APR example is based on borrowing a $6,000 undergraduate loan with a 38-month deferral period followed by a 240-month repayment period. The Prime Rate is assumed to be constant at 8.25%.
Graduate students: This APR example is based on borrowing an $8,000 graduate loan with a 27-month deferral period followed by a 240-month repayment period. The Prime Rate is assumed to be constant at 8.25%.
Interest rates indexed to the Prime Rate as published in The Wall Street Journal will vary. As of July 9, 2013, the published Prime Rate was 3.25%. The APR will increase if the Prime Rate increases and would result in a higher monthly payments, an increase in the number of scheduled payments, or both.