If you hope to earn higher wages in an entry-level position, completing your college degree is key. U.S. Bureau of Labor Statistics data suggests that when education levels increase, so do potential earnings. For example, entry-level positions that only require a high school diploma or equivalent pay a median annual wage of $37,930. Jobs requiring a bachelor’s degree were nearly double that at $75,440.
But higher education costs can be a barrier to earning a college credential. Scholarships, federal student loans, and grants may not be enough to pay tuition and other college expenses. Fortunately, private student loans are available to cover remaining balances. Yet, some students still unnecessarily shy away from using them as funding solutions due to several persistent myths.
To better understand how these credit-based loans might fit into your plans to earn your degree, let’s dispel five common misconceptions.
Myth #1: Borrowers must have a cosigner to obtain private student loan approval.
Cosigners are not required for loan approval. Private student loan applicants with good credit and an ability to repay the requested loan amount should be able to obtain the loan without a cosigner. However, this myth continues since recent high school graduates are unlikely to possess the credit profile needed to secure the loan on their own.
Myth #2: Borrowers can’t consolidate private student loans with federal student loans.
Students with federal student loans might be hesitant to also incur a private student loan to pay for their education, fearing an inability to merge the loans after graduation. The confusion often arises when figuring out the type of loan the student will have post-consolidation. Paying off multiple loans with a single lower interest rate loan can save money and reduce monthly payments.
Borrowers can consolidate both federal and private student loans. But, private student loans cannot be merged into a new federal student loan. Before consolidating private and federal student loans, students should carefully review their options. The new loan consolidation could result in the loss of certain federal student loan benefits.
Myth #3: All private student loans have high-interest rates and fees.
Borrowing money has a cost. Both federal and private student loan lenders charge interest, and possibly fees, for loaning money. Unlike federal student loans, private student loan interest rates are determined by the creditworthiness of the student borrower and cosigner (if applicable).
Better credit scores yield more favorable interest rates. Private student loan lenders offer both variable and fixed rates that may be comparable or more desirable than some fixed-rate federal student loans. The variable interest rates of private student loans can dip below that of current federal student loans.
Some federal student loans have an origination fee, which reduces the amount paid directly to the student. Fee amounts vary based on the first disbursement date of the loan. Many private student loan lenders offer loans with zero origination or disbursement fees.
Myth #4: Borrowers must repay their private student loans while attending school.
You may or may not be required to make loan payments while attending school. It will depend on the lender. But, doing so could provide unexpected benefits. If you elect to make in-school payments (as low as $25) or interest-only payments, you’ll leave school with less debt, reduce capitalized interest, and gain a headstart on building a positive credit history.
Myth #5: Cosigners remain tied to the loan until it’s paid in full.
A creditworthy cosigner can help a student borrower secure a loan at a low-interest rate. A common misconception is that the cosigner’s name and credit are linked to the loan until it’s paid off. Most private student loan lenders offer a cosigner release, which removes the cosigner from financial responsibility for the loan.
Before the cosigner can cut ties with the loan, the student borrower must meet specific requirements. These often include completion of the degree or certificate program, a history of 12 – 48 on-time loan payments, financial stability, and a good credit score.
Lending regulations have changed to allow for loan forgiveness if the student borrower dies. In 2018, the Economic Growth, Regulatory Relief, and Consumer Protection Act, required additional protections for cosigners. Lenders must release cosigners of any obligation on new (2019 or later) private student loans if the student borrower passes away.
There’s no need to let limited funding options stand in the way of your degree and a higher paying entry-level position. Use a private student loan to supplement or pay for your entire educational program. Apply now or learn more when you visit LendKey’s Private Student Loan FAQ page.