Attending college can be difficult for many students to afford without financial assistance. With even a semester of community college costing thousands of dollars these days, college affordability often makes a big difference in which college you’re able to choose. Thankfully, several higher education loan options are out there to help you pay your college bills, including scholarships, federal aid, private loans, and Income Share Agreements (ISA).

Private loans for college are worth considering if your federal student aid allotment isn’t enough to cover your tuition and other costs. However, some private lenders will tell you to consider taking out federal loans before weighing their products. 

This is because of the protections that the government affords its borrowers. However, those same private lenders will present their student loan options as customizable to your financial situation while positioning the federal government as one-size-fits-all.

At Meratas, we offer a host of alternative financing options to help students pay for their education. Options like installment plans, Income Share Agreements, and other Buy Now, Pay Later financing choices can oftentimes be a better fit than a traditional private student loan. Many of our options offer more flexibility than what is often available with traditional private loans.

However, if you’ve exhausted all your other financing options, you may need to turn to traditional private student loans to finish your education.

Unlike federal student loans, private student loans offer variable interest rates in addition to fixed rates. So if your credit history is strong, it could also lower your interest rate, as well as if you have a cosigner with a high credit score. 

When comparing private lenders to federal loan options, ensure that you do the research for yourself and know exactly what you want. After all, not all lenders are created equal.

What are private student loans?

Unlike federal student loans, which the government designates, independent lenders issue private student loans. These can be traditional banks or credit unions or student loan-specific organizations like Sallie Mae.

Each organization has different eligibility requirements, interest rates, and repayment terms. So, it’s a great idea to compare other options before choosing one. Even though private student loans may not always be your best financial option, there are some situations where taking out a personal student loan makes sense. Let’s look at three types of private student loans for college and beyond.

 In-school loans for students and parents

The beauty of in-school student loans in the private marketplace is that there are many to choose from. Whether you’re a college freshman, a scholar seeking a doctoral, or are the parent of one — there’s something for everyone. Sallie Mae, for example, offers 13 different education loans, from paying for the private kindergarten of your toddler to financing your study for the bar exam.

But with varying loan types come more choices. Take repayment as one example: College Ave offers undergraduates four options while they’re in school:

• Defer payments entirely
• $25 monthly payments
• Interest-only payments
• Full principal-and-interest payments

 Refinanced loans for graduates

Private lenders offer the option of refinancing federal and private loans into one new loan. The key difference between private refinancing and federal loan consolidation could cost you more in the long run, as the repayment term could lengthen. 

However, private loan refinancing could award you a lower interest rate and could help you save on the total cost of your debt. In addition, a solid credit score and steady income may help you qualify for the lowest interest rates.

Private lenders promote their average customer’s savings by refinancing. So it’s especially crucial to proceed with caution if you’re refinancing federal loans as well and would lose their associated protections and forgiveness programs.

You should know some things before you refinance any of your student loans, such as what interest rates you’ll end up with, how much you can afford to pay each month, and if you meet all the lender’s requirements.

The repayment process for private student loans

There are a few ways to make using private loans more manageable. First, aim to put extra money toward your loan’s principal to knock it out sooner. Doing so could save you a lot of money on interest.

At the same time, pay attention to the interest rate on your loans. If it’s variable and keeps climbing, look into refinancing your student loans. Refinancing is a fancy way of saying “swapping an existing loan for another.” Qualifying for a lower interest rate by refinancing will lower your monthly payments, too.

Finally, reach out to your lender if you wind up struggling to keep up with your private student loan payments. Some will work with you if you’re having a hard time. For example, they might allow you to defer payments temporarily or lower your interest rate.

It always pays to max out your federal borrowing options and alternative financing options first before resorting to private loans. But if you need to borrow privately, aim to find loan servicers with the most favorable terms. Then be vigilant about paying them off as quickly as you can once you graduate.

The most common repayment processes include:

Immediate repayment: You will start making principal and interest payments while still in school. This could help keep down your out-of-pocket costs, but it might present additional financial pressure while you’re in school.

Interest-only repayment: You will only pay the interest while in school, which could reduce the total cost of the loan payment you’ll have to repay. Even if the monthly interest costs are minimal, you’ll have to budget this into your monthly expenses and might need to take on a part-time job to cover the payments.

Deferred repayment: You will only start paying back the loan amount once you’ve graduated or dropped below half-time enrollment. Interest could still accrue during this time, making your overall debt higher.

Refinancing your private student loans: You might get a lower interest rate if you have a solid income and excellent credit. Depending on your specific situation, this can help you spend less money over the life of your loan program. However, keep in mind that lower monthly payments might mean an extended loan term. A longer-term could cost you more, so weigh out the pros and cons of refinancing private student loans.

In general, repayment terms for private loans for graduate students can range anywhere from five years to over 20 years, but remember that the interest will add up over time.

Options to Consider Before Private Student Loans

Unlike traditional private student loans, Buy Now Pay Later options are relatively new to the financial aid scene.

There are three different types of buy now pay later options that Meratas helps schools offer to their students: Installment plan, Flat plan, Hybrid plan.

Buy Now Pay Later options are proven to increase conversions. No consigner is required for students, making your program more accessible to students.

Our Installment Plan option is a fixed payment plan for students. Tuition payments are divided equally, and they are collected over the course of a few months. 

The Flat Payment Plan incorporates all of the flexibility that your students want with the reliability that you need.

The Hybrid Plan means your students don’t have to start paying back their tuition until they’re making over the minimum income threshold and their payments are linked to their income by a percentage.

How to know if you’re eligible for private student loans

While the government considers your level of financial need when issuing financial aid, private lenders have different requirements. Factors that are considered can include your income, credit score if you have a cosigner, and debt-to-income ratio. Eligibility will vary by lender, but having a low credit score or no credit history will likely make it difficult for you to qualify. Having a cosigner can help if their credit score and income meet the eligibility requirements.

Overall, the decision to take out private student loans is one you should consider carefully. However, if you’ve already exhausted federal student loans and other alternative financing options but still need funds for school, a private student loan may be the last option for finishing school. Carefully work through your options before taking out private student loans. If you’re interested in learning more about great financial aid or alternative financing options for schools or programs, check out our student’s page!