Private Student Loans: When to Borrow and How to Apply

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Navigating Private Student Loans for College

Paying for college is a challenge for many families today, with educational costs continually rising. While education is a valuable investment, the financial situation for every student is unique. When federal student loans or financial aid packages are insufficient to cover costs, private student loans may be an option.

Prioritize Free Money and Federal Aid First

Before borrowing privately, maximize all available “free" money and federal aid options:

• Scholarships and Grants: Seek out aid that does not need to be repaid.
• Work-Study Programs and Savings: Utilize work-study opportunities and savings.
• Complete the FAFSA: The Free Application for Federal Student Aid is the crucial first step. It determines eligibility for federal, state, and institutional aid.

After receiving your financial aid letter, use a student loan calculator to borrow only the amount needed to cover the remaining costs of attendance.

Understanding Private Student Loans

Private student loans are offered by banks, credit unions, and other for-profit and non-profit organizations.

• For-Profit Lenders: Many are large corporations whose goal is to maximize profit, often by lending at higher interest rates. Rates on these loans vary widely based on credit history.
• Non-Profit Lenders: These providers, such as the NC Assist Loan, are motivated by helping students achieve their educational goals rather than maximizing profits.

Key Interest Rate Types:

• Variable Rate: The interest rate can change over the life of the loan.
• Fixed Interest Rate: The rate remains constant for the entire duration of the loan.

Annual percentage rates (APRs) on private loans can exceed 16%, emphasizing the need to shop around for the most competitive rates and terms.

How Private Student Loans Work

Students and parents can borrow money to cover college costs and repay the sum over time.

• Eligibility: Private loans often require a credit check and a cosigner, typically a parent, which makes the cosigner liable if the borrower fails to make payments.
• Less Flexibility: Compared to federal loans, private loans generally offer fewer repayment options and less flexibility if you face financial hardship.

Pros and Cons of Private Student Loans

Pros:

* Help cover college costs when other aid is insufficient. 

* More lenders to choose from, increasing options. 

Non-profit lenders are available as an alternative.

Cons:

* Requires careful shopping to find the best lender and terms.

* For-profit lenders prioritize profit, potentially through higher rates.

* May have variable interest rates, which can increase over time.

* Fewer repayment options and less flexibility than federal loans.

Deciding on the Best Private Student Loans

Taking on debt for higher education is a significant commitment that requires informed decision-making. To find the right loan: 

1. Do Your Homework: Thoroughly research different lenders and loan types.
2. Read the Fine Print: Understand all terms and conditions before signing any agreement.
3. Compare Rates: Shop around for competitive interest rates and favorable terms.
4. Ask Questions: Do not hesitate to ask lenders for clarification on any confusing aspects of the loan.

In North Carolina, the NC Assist Loan, offered by the non-profit College Foundation, Inc. (CFI), provides an option for students and parents to cover remaining college costs.

Key features:

Eligibility: The loan is available to North Carolina residents attending an eligible in-state or out-of-state school, as well as out-of-state students attending an eligible North Carolina college or university.

Rates and Fees: The loans feature competitive fixed rates and have no application, origination, or prepayment penalties.

Application: Students and parents can apply for a loan at NCAssist.org.