One of the largest tasks to tackle when sending a child to college is figuring out how you’re going to pay for it. First, you fill out your FAFSA to determine potential financial aid from the government, then you fill out grant and scholarship applications until your fingers are sore, while at the same time going over and over your budget figuring out how much you can contribute out of pocket. When the dust settles, you may end up having to apply for private student loans. This is unfamiliar territory for many people who might wonder how private student loans work.
Where To Get Private Student Loans
- Banks : Most major banks also offer student loan products. Many will offer interest rate breaks for applicants that are also customers. This is the route that we went, and received a 0.5% interest rate discount.
- Credit Card Companies : I received countless mailings from Discover card offering student loans. Other credit card companies may also service student loans.
Private Student Loan Interest Rates
It does pay to shop around as interest rates may vary between providers. Many private student loan providers will offer both fixed and variable rate loans. Having just gone through the student loan process, the fixed rate loans are between 10 and 11%, while variable rate loans are closer to 8 to 9%. Of course variable rate loan rates are always subject to go up or down.
How Much Can Be Borrowed With Private Student Loans?
Applicants can fill in whatever number they want for the amount requested. However, the maximum amount you can borrow is the total estimated cost of the year of college minus all other financial aid received. Before approving your loan, the bank will contact the college being attended to verify the amount requested is accurate. The loan amount may be adjusted to be inline with this requirement.
How Are Private Student Loans Disbursed?
Once approved, the amount of your student loan will be disbursed to the university on a date they specify. Also, if you apply for one student loan for the entire school year, the loan amount will be split with half being disbursed for the first semester, and the other half for the second semester.
Repayment of Private Student Loans
As with student loans from the federal government, repayment of private student loans begins 6 months after the student exits full time student status. Interest accrues while the student attends college, so any amount that can be applied towards loans during that time will greatly decrease the amount of interest that needs to be repaid.
In a perfect world, we’d be ale to pay for our child’s college education out of pocket and not take out any loans. But the reality is, we will be taking out some amount of student loans. However, having our eyes wide open to how they work will help us ensure we keep the amount borrowed as low as possible, and pay them off as quickly as we can.
How about you, EOD Nation, have you taken out any private student loans?