What are your private student loan interest rates? Is there a grace period on your student loans? How long are your student loan repayment terms?
So take time to read over your private student loan contract for all the need-to-know information. Here’s what to look for in your student loan contract before you sign on the dotted line.
How much are you borrowing?
What’s your interest rate?
Is your rate fixed or variable?
What’s your loan term?
Do you have a grace period?
Can you apply for deferment or forbearance?
Can you get cosigner release?
While this might seem like an obvious question, it’s a good starting point for diving into your student loan contract. Your contract should say how much you’re borrowing.
But this sum won’t mean much on its own, so use a student loan calculator to estimate your monthly payments. With a student loan calculator, you can see how much you’ll need to pay back each month, plus how much you’ll spend on interest.
Let’s say you’re borrowing $25,000 at a 6.8% interest rate on a 10-year term. By using a calculator, you’ll see that your monthly payments will be $288 and that you’ll spend $9,524 on interest.
If you’re borrowing any federal student loans, remember to take those into account, too. By estimating your monthly payments, you’ll have a clearer sense of what your financial obligations will be after you graduate.
Knowing your interest rate will reveal the long-term costs of your loan. Interest typically starts accruing on a private student loan from the date of disbursement.
Once your loan enters repayment, that interest will capitalize, or get added to your principal. If you haven’t paid the interest during school, you’ll end up paying back an even bigger balance than the amount you initially borrowed.
To keep costs down, you could make small payments while you’re still in school. It’s also useful to shop around with several private lenders to ensure you find the best rate.
Along with looking for your rate, find out if your loan comes with any origination or other fees that could add to your costs of borrowing.
Unlike federal student loans, which come with fixed interest rates, private lenders typically offer you a choice between a fixed and variable rate. So when looking at variable- versus fixed-rate student loans, what’s the difference?
Well, variable rates tend to start out lower, but they could rise over time. Fixed rates stay the same over the life of your loan. You’ll always know what you’re paying from month to month.
If you’re confident you can pay back your loan quickly, a variable rate could potentially save you money. But if you’re sticking with a 10-year term or prefer the peace of mind of a steady rate, opting for a fixed rate could be the better call.
Once you know your loan amount, interest rate and rate type, take a closer look at your loan term. Many private lenders let you choose a term between five and 15 years when you borrow.
It’s important to make an informed choice since you typically can’t change your term after you sign your contract. The only exception is if you refinance your student loans for better rates and new terms.
The standard term is 10 years, but you can pay your loan off ahead of schedule without penalty.
Similar to the federal government, most private lenders offer a student loan grace period, meaning they defer payments while you’re in school and for six months after you graduate. But not all lenders offer this benefit, so it’s crucial to find out when repayment begins on your loan.
Before finalizing your contract, find out when your first payment will be due.
Your private student loan contract should detail any benefits that come with your loan, such as deferment or forbearance. Not all private lenders offer these perks, but some allow you to postpone payments if you run into financial hardship or go back to school.
These benefits can be a godsend if you can’t make payments since they’ll let you pause your bills temporarily without going into default. That said, interest will continue to accrue on your private student loans during a period of paused payments.
So look over your student loan contract to see if these protections are there, and don’t forget to read the fine print when it comes to interest.
If you’re an undergraduate, getting student loans without a cosigner is rare. Most students apply with a cosigner, such as a parent. Your cosigner becomes just as responsible for the debt as you are, and this loan increases their debt-to-income ratio.
If you want to get your cosigner off the hook, check to see if your private student loan comes with the possibility of cosigner release. Some lenders will remove your cosigner from the loan after a year or two of on-time payments.
If your contract has this perk, you can eventually apply for cosigner release and assume full responsibility for your student loan.
Read over the details before you borrow
Signing a private student loan contract is a binding legal agreement, so you want to make sure you know what you’re getting into before you finalize the deal. Find out how much you owe, what your interest rate is and what your monthly payments will be.
Familiarize yourself with all the important student loan terminology, and watch out for any extra fees, such as origination fees or late payment fees. And make sure you understand what will happen to your loan once you sign your agreement.
Most lenders will send the loan directly to your financial aid office. Once your tuition bill is paid in full, any remaining funds will be returned to you to use or return to the lender.
Along with using your loan money wisely, you can decide whether you’ll start paying while you’re in school or wait until your grace period is up. By informing yourself about your loan now — and shopping around to find the best student loan — you can make smart decisions that will set you up for future financial success.
Need a student loan?Here are our top student loan lenders of 2019!
|* The Sallie Mae partner referenced is not the creditor for these loans and is compensated by Sallie Mae for the referral of Smart Option Student Loan customers.
** Discover's lowest rates shown are for the undergraduate loan and include an interest-only repayment discount and a 0.25% interest rate reduction while enrolled in automatic payments.
1 Important Disclosures for Earnest.
Explanation of Rates “With Autopay” (APD)
In school deferred payment is not available in AL, AZ, CA, FL, MA, MD, MI, ND, NY, PA, and WA).
2 = Sallie Mae Disclaimer: Click here for important information. Terms, conditions and limitations apply.
3 Important Disclosures for College Ave.
College Ave Student Loans products are made available through either Firstrust Bank, member FDIC or M.Y. Safra Bank, FSB, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.
(1)All rates shown include the auto-pay discount. The 0.25% auto-pay interest rate reduction applies as long as a valid bank account is designated for required monthly payments. Variable rates may increase after consummation.
(2)This informational repayment example uses typical loan terms for a freshman borrower who selects the Deferred Repayment Option with a 10-year repayment term, has a $10,000 loan that is disbursed in one disbursement and a 8.35% fixed Annual Percentage Rate (“APR”): 120 monthly payments of $179.18 while in the repayment period, for a total amount of payments of $21,501.54. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary.
(3)As certified by your school and less any other financial aid you might receive. Minimum $1,000.
Information advertised valid as of 7/1/2019. Variable interest rates may increase after consummation.
4 Important Disclosures for CommonBond.
A government loan is made according to rules set by the U.S. Department of Education. Government loans have fixed interest rates, meaning that the interest rate on a government loan will never go up or down.
Government loans also permit borrowers in financial trouble to use certain options, such as income-based repayment, which may help some borrowers. Depending on the type of loan that you have, the government may discharge your loan if you die or become permanently disabled.
Depending on what type of government loan that you have, you may be eligible for loan forgiveness in exchange for performing certain types of public service. If you are an active-duty service member and you obtained your government loan before you were called to active duty, you are entitled to interest rate and repayment benefits for your loan.
A private student loan is not a government loan and is not regulated by the Department of Education. A private student loan is instead regulated like other consumer loans under both state and federal law and by the terms of the promissory note with your lender.
If your private student loan has a fixed interest rate, then that rate will never go up or down. If your private student loan has a variable interest rate, then that rate will vary depending on an index rate disclosed in your application. If the interest rate on the new private student loan is less than the interest rate on your government loans, your payments will be less if you refinance.
If you don’t pay a private student loan as agreed, the lender can refer your loan to a collection agency or sue you for the unpaid amount.
Remember also that like government loans, most private loans cannot be discharged if you file bankruptcy unless you can demonstrate that repayment of the loan would cause you an undue hardship. In most bankruptcy courts, proving undue hardship is very difficult for most borrowers.
5 Important Disclosures for Discover.
|3.99% – 11.44%1||Undergraduate and Graduate|
|3.98% – 11.35%*,2||Undergraduate and Graduate|
|3.96% – 11.98%3||Undergraduate, Graduate, and Parents|
|3.66% – 9.64%4||Undergraduate and Graduate|
|3.87% – 11.87%**,5||Undergraduate and Graduate|