Getting a Student Loan

Best Private Student Loan Features

August 31, 2015

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Heading to college this fall? Now is the time to shop for the best private student loan for you. Colleges and universities will begin sending out billing statements before the Fall semester begins. Once you find out how much financial aid eligibility you received, you can calculate how much of a loan you will need to apply for to cover the difference.

Typically, students should apply for a private student loan one month before the funds are due or sooner. Conditional approval can come quickly but it is not the final approval. Your school must certify your loan, which may add more time to your application process. While it takes less than thirty days to process and certify a loan, in some instances it may take several weeks.

Interest Rate

The most recognizable aspect of a private student loan is the rate. Ideally, borrowers want the lowest rate available as this is an indicator of the cost of repayment. The interest rate assigned to an application will be based on a credit check. The stronger the applicant’s credit, the more likely a lower rate can be issued, and the lower the applicant’s credit, the higher the rate may be.

Underlying rate indexes, like SOFR or Prime, will use variable rates for private student loans. Additionally, a loan margin represents the loan rate which, when added to the index rate, equals the total interest rate. Margins on private student loans can be as low as 2.14% or as high as 14%, depending on the program, so look at what is available to compare. The appeal of a variable loan is that borrowers with good credit may qualify for lower rates. However, rates on these loans may increase in the future, so if a borrower earns a low rate now, it makes sense to pay it off as quickly as possible to mitigate the risk of future interest rate variability.

Private student loans carrying a fixed rate are less common but may be available. A fixed rate on a loan can provide more predictability, but may also carry a higher rate, increasing the cost of interest during repayment.

Private Student Loan Payments While in School

Borrowers may defer all payments while in school for some private student loans, whiles others may require a minimum payment to be made each month. Deferring payments while in school offers some short-term financial relief for the borrower because they would not be responsible for payments while in school, but loan interest will accrue during that period, making it more expensive to repay. Making payments on a private student loan while in school is a smart way to help eliminate debt as quickly as possible and helps to build a better credit profile for the borrower by demonstrating good repayment habits over time.

Repayment Benefits

You can also looks for ways to reduce the cost of repaying a private student loan with interest rate reductions. You can set up automatic payments to reduce rates or lenders may reduce it after a certain percentage of the loan is repaid. Verify the requirement and make sure to use this benefit to save some money on loan repayment.

Cosigner Release

If someone cosigns a private student loan, there may or may not be options for the cosigner to be released. This can be a challenging situation for cosigners as they may like to be removed from the loan at a future date. You should confirm if the lender provides a cosigner release option, and if so, how long does it takes and what is required to earn this benefit.

Term Years of the Student Loan

Term years refers to the number of years scheduled to repay the loan. Terms on private student loans can vary from 10 to 25 years. The rule of thumb on loan terms is the longer the term, the lower the minimum monthly payment. However, the longer it takes to pay off a loan, the more interest will accrue on the account.

Prepayment Penalties

Lenders charge a prepayment fee to a borrower if they pay their loan off ahead of the scheduled repayment term. Lenders assess this fee to borrowers to secure earnings in the event the borrower pays off the loan too quickly preventing future interest revenues. This is an important consideration for motivated borrowers who want to get out of debt quickly. Ideally, a borrower would not want to be responsible for prepayment penalties, but lenders may charge them, so look for an answer to this important question during the application process.


Please note that the information provided on this website is provided on a general basis and may not apply to your own specific individual needs, goals, financial position, experience, etc. LendKey does not guarantee that the information provided on any third-party website that LendKey offers a hyperlink to is up-to-date and accurate at the time you access it, and LendKey does not guarantee that information provided on such external websites (and this website) is best-suited for your particular circumstances. Therefore, you may want to consult with an expert (financial adviser, school financial aid office, etc.) before making financial decisions that may be discussed on this website.