College Planning & Financial Aid
Getting a Student Loan

Mixing Federal and Private Student Loans

June 30, 2019


The cost of college has increased dramatically since the days your parents attended college. It’s not uncommon to need a bit of help financing it. At this point, you’ve applied for scholarships and grants, and have pooled your savings. You may have gone as far as to take out federal student loans. And what if you still can’t finance the full cost of your college education?

After taking out federal loans, many students supplement them with private loans. Some students even skip federal loans and borrow all they need from private lenders such as banks and credit unions if they obtain beneficial terms. This is, of course, up to preference, as well as dependent on your personal finances. Continue reading to learn about different loans and how you can responsibly finance your education with the right combination.

Getting Started

You don’t have to start the process worried about every single type of loan and financial aid; work through each step systematically and you will often find that it is easier to move forward. When applying to colleges and universities, you are advised to fill out the FAFSA (Free Application for Federal Student Aid). This determines the kinds of government grants and loans you’ll qualify for.
Once you are admitted, your college will typically send you your financial aid package. This package will provide you options such as scholarships, grants, and loans. You will probably want to take all the grants and scholarships you can get. They’re essentially discounts and don’t require you to pay them back after graduation. As for the loan options, you’ll likely see:

  • Federal Student Loans, which include Direct Subsidized Loans, Direct Unsubsidized Loans, and Direct PLUS Loans for graduate and professional-school students. There are also Parent PLUS Loans if your parents are interested in contributing to your education by taking out loans in their own names.
  • Private Student Loans. You must apply for private student loans separately through a private student loan company. The most important thing to remember about private loans is that they aren’t uniform. Make sure you learn as much as you can about private student loans before signing up. There are so many different choices and you want to make sure to choose the best one for you.

Mixing it Up

If the school you are attending doesn’t offer you a package that includes full institutional costs in federal loans, grants, and scholarships, you’ll also want to explore the private loans available to you.

Private student loans typically don’t require as much lead time, though you’ll want to apply for them and have them disbursed well before your bill is due. Once you choose your school and determine how much money you’ll have to take out on a private student loan, you can begin shopping around at various banks and other financial institutions for terms and rates.

Decide what kind of loans you’d like to obtain, as well as the amount of money you’ll need. This way, you can plan the perfect loan mix for your situation.
In order to do so, there are some characteristics of both federal and private student loans to keep in mind:

Qualities of Federal Student Loans

The government is in charge of disbursing federal student loans. Here are some things to know about them:

  • You get access to federal loans through FAFSA. Understanding your Estimated Family Contribution (EFC) can be a good clue as to how much aid you are likely to qualify for. Federal student loans are structured to help those who have high financial need the most.
  • Your credit history isn’t usually relevant to receiving federal student loans.
  • You will generally have until after you graduate to begin paying back your federal student loans; leaving school or going down to lower than 50%-time enrollment may also “trigger” these loans and begin repayment.
  • There are strict limits on federal financial aid, which is why many people get a mix of federal and private loans. Typically, you’re only allowed to borrow a certain amount per year, which sometimes isn’t enough to cover full tuition.
  • Cosigners aren’t necessary or usually helpful for federal student loans.

Qualities of Private Student Loans

Private student loans are much more diverse since they are offered through many different financial institutions. Here are some things to know about them so you can select wisely:

  • Private lenders consider your credit history, which may play a role in the interest rate you receive. You may be able to improve your credit score by paying certain bills on time for other loans or credit that you may have.
  • While you can defer private student loans while you’re in school, make sure you know the conditions of your particular loan. Some loans require you to start paying back before you graduate.
  • Having a cosigner may improve your rate if the cosigner has better credit than you do.
  • Financial need is often not a factor in the private student loan world, although need is verified by private lenders.
  • Depending on your lender, you may be able to use private student loans for any qualified education-related expense. Textbooks, lodging, or meals are considered qualified expenses as long as you are attending school full-time.

When you consider your private student loan options, don’t assume that the first rate you receive is the best offer you’ll get. There is considerable variation in the interest rates available, as well as deferring options, payment plans, and other factors. However, payment plans are usually locked in once you get a private loan. Before you accept, make sure you understand and are satisfied with the terms.

Applying For the Loans You Need

Here is our recommended strategy for moving forward with your mix of loans.

-Apply for schools and narrow down your options, based on the programs you like, the costs, and other benefits. Could you live at home and save rent money? Could you walk to school and not need a car? A good start is to pick an economically sound choice that will still get you the education you want.

-Evaluate your grants, scholarships, and any contributions that family or past savings can make. Determine the size of the gap that will need to be filled by loans.

-Evaluate your federal loan options. Consider the differences between subsidized, unsubsidized, and even Parent PLUS loans.Apply for private student loans once you’ve done your research. Ask yourself questions like:

  • What do I qualify for?
  • Do I have good credit or a cosigner who does?
  • Whose rates are the best?
  • Who offers attractive repayment options?
  • Which lender makes the application process free or inexpensive?
  • Does the lender offer valuable counseling as you move through the process?
  • Can adding a co-signer help you with your rate?

-Once you’ve evaluated a few options, apply to obtain the private loans you need. Then, start marking your calendar with important dates, like your first payment.
-Start looking for other ways to economize. Can you get a roommate, swing a part-time job, or participate in work-study? If you find employment on or off campus, you may be able to take fewer loans for a future semester.

Tips for Making a Smart Mix of Student Loans

In addition to all of the above, consider the following:

  • Make sure you’ve evaluated whether the loans you applied for privately are student loans or personal loans; student loans often have more favorable terms.
  • Make sure you think carefully (and maybe talk to your friends who study economics) about whether to choose variable interest rates or fixed interest rates for your private loans.
  • Sometimes, a fixed rate is good for planning or to lock in an unusually low rate. Other times, the current high-interest rates will go down sometime in the future and thus make a variable rate loan more beneficial.
  • Down the road, consider whether you would benefit from refinancing: student loans are usually long-term debt unless you are in a particularly high-paying field. Refinancing a few years into your payments may be helpful for reducing your interest rate and for improving your cash flow.

You can take control of your future and make the smartest choices for your goals, once you do your research. Get started with LendKey today, and we can help you obtain the private student loans you need quickly and easily.

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.