What is a Private Student Loan?
College is one of the biggest investments a student and their family can make. Tuition, books, housing and other expenses add up quickly. Many students rely on financial aid from the government to pay for their education. However, when grants, work-study and federal loans are not enough, students may need private student loans to bridge the gap.
A private student loan provides additional funding when other sources fall short. Understanding loan options is essential to making informed financial decisions and avoiding overwhelming debt.
This blog discusses everything there is to know about what a private student loan is. We cover:
What is a Private Student Loan?
What is a Good Private Student Loan?
What is Considered a Good Interest Rate for Private Student Loans?
How to Choose the Right Loan.
What is The Texas Extra Credit Education Loan Program?
What is a Private Student Loan?
A private student loan helps bridge the gap when federal aid isn't enough. Banks, credit unions, for profit lenders and nonprofit lenders issue these loans based on the applicant’s creditworthiness and other factors.
Key differences between private and federal student loans include:
Eligibility
Federal student loans are accessible to most students, regardless of credit history. The government does not require a credit check, making them an easy first choice for funding your education.
Private student loans, on the other hand, often require a credit check. Many students, especially those without established credit, will need a cosigner to qualify for the best rates and terms.
Interest Rates
Federal student loan interest rates are fixed and determined by Congress. Every borrower receives the same rate for a given loan type in a particular year, regardless of credit score.
Private student loans work differently. Lenders set interest rates based on market conditions and the borrower's financial profile. Students with strong credit may qualify for lower interest rates.
Repayment Options
Federal loans offer multiple repayment plans designed to accommodate different financial situations. Income-driven repayment, deferment and forbearance options help borrowers manage payments. Some borrowers may even qualify for loan forgiveness.
Private student loans generally provide fewer repayment options. Many lenders offer a grace period before payments begin, but repayment flexibility varies.
Loan Limits
Federal loans have strict borrowing limits. Dependent undergraduate students can only borrow a certain amount each year and throughout their college career. If tuition, housing and other expenses exceed these limits, students must find additional funding sources.
Private student loans typically do not have the same restrictions and can cover up to the full cost of attendance; however, some private student loan lenders may have yearly maximum amounts that students can borrow.
What is a Good Private Student Loan?
When comparing private education loans, students and parents should look for:
Low Fixed or Variable Interest Rates: Competitive rates help minimize long-term costs.
Interest Rate Reduction Opportunities: Can you save money by going on auto pay?
No Origination or Application Fees: Avoiding extra charges keeps borrowing more affordable.
Multiple Repayment Terms: Options should fit different financial situations and goals.
Cosigner Release Options: A pathway to remove the cosigner after meeting minimum payment and credit requirements.
Additional Benefits: Look for additional benefits such as TPD and death forgiveness.
Choosing a loan with these features can make repayment more manageable and reduce financial stress after graduation.
What is Considered a Good Interest Rate for Private Student Loans?
Several factors can influence the interest rates for private student loans. Being aware of these factors can help you make informed borrowing decisions and plan your finances better. Here are some key ones:
Credit Score: Higher credit scores usually qualify for better rates.
Cosigner: A creditworthy cosigner can improve loan approval chances and approval for lower interest rates.
Loan Term: Shorter repayment terms often come with lower rates.
Fixed vs. Variable Rates: Fixed rates remain the same, while variable rates fluctuate with market conditions.
Repayment Terms: Choosing the right repayment term, such as immediate repayment, can offer lower rates.
When considering interest rates for private student loans, the range generally falls between 3% to 12%. Borrowers should compare options and choose the lowest rate possible.
How to Choose the Right Loan
Selecting the right student loan is a critical decision that affects a borrower's financial future. Parents and students should take the following steps before selecting a private student loan:
Compare Lenders
Different lenders offer different rates and repayment options. Researching multiple options allows borrowers to find the most competitive loan.
Check Credit Requirements
Most private student loans require a credit check. A borrower with a high credit score can qualify for lower interest rates. Many students lack established credit and need a cosigner such as a parent or guardian. A cosigner with strong credit can improve approval chances and secure a lower rate.
Understand Repayment Options & Terms
Private loans offer different repayment structures. Some allow borrowers to make interest-only or small fixed payments while in school, which can help reduce the amount of interest accrued. Others may require full payments to start immediately after graduation. It’s also important to understand how the repayment term, or the number of years to repay the loan, can affect your interest rate and the amount of interest you will end up paying through the life of your loan. To better understand these differences and costs, be sure to review each lenders’ Application & Solicitation Disclosure, which is required to be provided to applicants. Knowing these terms enables you to select a manageable repayment plan.
Use a Loan Calculator
A loan calculator helps estimate monthly payments based on the loan amount, interest rate and repayment term. Understanding future payment obligations allows students and parents to budget effectively and avoid overborrowing.
Private student loans can provide essential financial support, but choosing the right one requires careful planning. Taking the time to evaluate options ensures students graduate with manageable debt and a strong financial foundation.
What is the Texas Extra Credit Education Loan Program?
If you’re a Texas resident, you may be eligible for Texas Extra Credit Education Loans, a low-cost private student loan program option designed to help cover education expenses when federal aid isn’t enough. This program offers affordable financing solutions with borrower-friendly features, making it a strong choice for families seeking additional funding for college.
Key benefits include:
Competitive Interest Rates: Low fixed and variable rates currently ranging from 2.74% - 6.89% APR..
Low-Cost: No application, origination or disbursement fees.
Flexible Repayment: Choose from multiple repayment options and three repayment terms.
Cosigner Release: Cosigners can be removed after meeting eligibility requirements.
Borrower Benefits: Reduce your payments with Auto Pay and Graduation Benefits.
With a focus on keeping education accessible and affordable, the Texas Extra Credit Education Loan Program can help students achieve their academic goals without excessive financial burden.
Take the Next Step Towards an Affordable Education
Paying for college should not feel overwhelming. The Texas Extra Credit Loan Program offered by Higher Education Servicing Corporation, gives students and parents an affordable way to cover education costs.
Higher Education Servicing Corporation is a Texas-based nonprofit committed to supporting students on their academic journey. In addition to student loans, we also offer Parent Loans for parents, grandparents or other credit-worthy applicants that want to pay for a student’s college education as well as Graduate Student Loans to help those pursuing advanced degrees. Our commitment goes beyond just lending by providing financial planning courses to equip students and families with the knowledge to make informed decisions about college expenses.
Those looking for a trusted, cost-effective private student loan can apply today.