College is getting more and more expensive. With rising costs, more students are exhausting federal financial aid options, leaving them with no choice but to turn to private lenders.
Although private student loans can be useful, they don’t have as many benefits as federal aid. Many borrowers try to find a way to transfer private student loans to federal ones, but unfortunately, that isn’t possible today.
However, there are some ways to get federal-like benefits on your private loans. Find out more about private lenders and how to get similar options.
What are private loans?
Although federal loans should be the first place you look for financial assistance, sometimes you just need more help. Individual lenders and banks offer private loans to students who need extra money to pay for their education.
Private lenders set their own eligibility requirements, interest rates, and repayment terms. When you need funding to finish your degree, private loans can be a smart option to pay for school.
Private student loans vs. federal student loans
The U.S. Department of Education, a government agency, offers federal loans. When evaluating your application for aid, the government does not consider factors like your credit score. Instead, you submit a Free Application for Federal Student Aid (FAFSA) each year, which they use to determine how many grants or loans you receive.
The government sets the interest rates for federal student loans, and their rates tend to be lower than those of private loans. You also have a guaranteed grace period after graduation before you have to start making payments. This allows you time to find a job with a reliable income. In addition, federal loans often have unique benefits if you run into financial trouble.
If you cannot keep up with your payments, you can use an income-driven repayment plan, where the government caps your payments at a percentage of your income. You are also eligible for several forgiveness programs, where a portion of your debt may be forgiven if you meet specific requirements.
In addition, if you become unemployed, sick, or decide to return to grad school, you might be able to enter your federal loans into deferment or forbearance, where you can pause payments for months or years.
With private loans, the lending company sets the interest rates and repayment terms. They often have stricter eligibility requirements, with credit score minimums you need to meet to get a loan. If you have private loans, you aren’t eligible for federal benefits like income-driven repayment or forgiveness.
While federal loans have set interest rates, private lenders offer more options. You can choose between a fixed rate or variable rate loan. With a fixed rate loan, your interest rate is the same for the duration of your repayment. Variable rates are often lower than fixed ones, but they can fluctuate depending on market conditions.
With some private loans, the lender requires you to make payments right away. That can be difficult when you are still in school or job searching.
Can you transfer private student loans to federal loans?
Because private loans have different repayment terms, many people want to transfer private student loans to federal loans. However, that’s not possible. Private loans are completely separate from federal loans.
But not all lenders are the same. So before taking out a loan, compare lenders and the different repayment plans to see who offers the most generous terms.
Federal benefits from private loans
Some lenders offer private loans with perks that are similar to those of federal loans. Here are a few you can benefit from:
Some private companies offer grace periods, much like federal loans. These can give you six months or more after graduation to find a job without worrying about making payments on your loans.
If you have trouble making your payments, there are lenders that will allow you to make interest-only payments on your loans. So instead of making payments towards principal and interest, it will go only to interest.
This can dramatically reduce how much you owe each month, freeing up money in your budget. For example, LendKey allows you to make interest-only payments for up to two years if you struggle to find a job.
For those who are facing a financial hardship, such as a job loss or medical emergency, some lenders allow you to postpone your payments with forbearance. This means you can stop making payments for a period of time while you get back on your feet.
For example, College Ave is one lender that offers forbearance for borrowers struggling with their payments.
Evaluating your options
Even though you can’t transfer private student loans to federal loans, some private lenders do offer helpful benefits. Before taking out a private loan, compare lender policies to find which offers flexible repayment plans and hardship policies.
For more information on private student loans, here are the best private loans available now.
Interested in refinancing student loans?Here are the top 6 lenders of 2018!
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1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 5.87% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 5.87% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at email@example.com, or call 888-601-2801 for more information on ourstudent loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
3 Important Disclosures for SoFi.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.57% – 6.98%3||Undergrad & Graduate||Visit SoFi|
|2.47% – 5.87%1||Undergrad & Graduate||Visit Earnest|
|2.47% – 8.03%4||Undergrad & Graduate||Visit Lendkey|
|2.80% – 6.22%2||Undergrad & Graduate||Visit Laurel Road|
|2.48% – 6.25%5||Undergrad & Graduate||Visit CommonBond|
|2.57% – 8.17%6||Undergrad & Graduate||Visit Citizens|