What is a private loan?

Playlist: Private Loans

What is a private loan?

A private loan is a loan taken out in the student's name and typically requires a credit check.

In order to qualify, the student may need a co-signer.

Private loans are not federally guaranteed and the terms and conditions are determined by private lenders and banks.

Private loan interest rates can vary, and some have interest rate caps as high as 25%. Most private loans allow students to borrow up to the cost of attendance minus other financial aid awarded.

Private loans have various repayment requirements and may require a student to make interest-only payments while in school.

Generally, private loans have a grace period similar to the 6-month grace period on the Federal Direct Subsidized and Unsubsidized Student Loans.

However, each lender sets the terms and repayment conditions on their private loan programs so it's important to check with the lender to confirm when repayment begins.

Private loans can be a useful, alternative funding option to cover additional educational costs not met by federal student aid.

Students and families should carefully research options, including other sources of funding, when considering any type of loan program.

See Full Transcript