A Guide to Financial Planning Before Applying for Private Student Loans

Key Takeaways

• Complete the FAFSA before considering private student loans
• Private student loan eligibility depends on enrollment status and credit profile
• A cosigner may improve approval chances and loan terms
• Planning ahead helps reduce borrowing and long-term costs

Whether you’re returning to college or starting your collegiate journey, furthering your education can be both exciting and overwhelming. A common source of stress during this time is figuring out how to finance your education. Before applying for private student loans, explore the following options to help meet your financial needs and minimize debt.

To qualify for a private student loan through LendKey, applicants must be enrolled at least half-time, be a U.S. citizen or permanent resident, meet age requirements, and pass a credit review. A cosigner may be needed.

1. Submit Your Free Application for Federal Student Aid (FAFSA)

The Free Application for Federal Student Aid (FAFSA) is a required step to determine eligibility for federal grants and loans. FAFSA provides access to two main types of aid: federal grants and federal student loans.

Federal Grants

Federal grants are financial awards provided by the government that do not need to be repaid. These grants are typically need-based, making them a valuable resource for students with limited financial means.

Subsidized Federal Student Loans

Subsidized loans are designed for undergraduate students with financial need. The government pays the interest on these loans while you’re enrolled at least half-time, during the six-month grace period after leaving school, and during deferment periods. However, subsidized loans come with borrowing limits based on your class ranking and dependency status, with a total limit of $23,000.

Unsubsidized Federal Student Loans

Unsubsidized loans are available to all students, regardless of financial need. Borrowers are responsible for paying the interest at all times, and these loans also have borrowing limits. While unsubsidized loans may not cover the full cost of attendance, they are generally easier to qualify for.

2. Apply for Scholarships

Scholarships are another valuable source of financial aid that does not need to be repaid. Unlike grants, scholarships are often merit-based and can help reduce the financial burden of college. They also enhance your resume, showcasing your dedication and achievements.

Where to Find Scholarships

Scholarships are available from various sources, including organizations, charities, businesses, colleges, government programs, and individuals. Use resources like the LendKey scholarship search tool to simplify your search to identify opportunities that align with your qualifications and interests.

3. Estimate Your Financial Needs and Monthly Payments

Before applying for a private student loan, calculate how much funding you’ll need and whether you can afford the monthly payments. Here’s how:

• Estimate Your Financial Need

  • Start with your school’s cost of attendance, which may include tuition, textbooks, supplies, and room and board. Subtract any financial aid awards, grants, scholarships, family contributions, and federal loans to determine the remaining amount.

• Evaluate Monthly Payments

  • Use an online loan calculator to estimate your monthly payment based on the loan amount, interest rate, and repayment term. Ensure the payment fits within your budget.

• Check Your Credit History

  • Private student loan rates and terms often depend on your credit profile or that of a cosigner. Review your credit report to understand your standing before applying.

What are the eligibility requirements for private student loans?

Private student loan eligibility typically requires that you are enrolled at least half-time at an eligible school, meet your state’s age of majority, and are a U.S. citizen or permanent resident. Because these loans are credit-based, lenders will also review your credit history and income. If you do not meet credit requirements on your own, applying with a cosigner may help you qualify.

4. Find a Cosigner for Your Private Student Loan

Private student loan lenders will consider a borrower’s credit score and ability to repay as part of the approval process. A cosigner is someone who shares equal responsibility for the loan and can improve your chances of approval. For students without a strong credit history or sufficient income, a cosigner with a solid financial profile can:

• May increase your chances of approval and help you qualify for better loan terms.
• Help secure a lower interest rate, potentially saving you thousands of dollars over the life of the loan.

Final Steps

Once you’ve explored all these options, you’re ready to apply for a private student loan. From completing your FAFSA to finding a cosigner, this process requires time and preparation. Starting early allows you to research thoroughly and make informed decisions about financing your education.

By following this guide and doing some financial planning you can reduce financial stress and set yourself up for success as you pursue your educational goals.