Personal Student Loan Basics

Not every student qualifies for a federal student loan program.  Many of these programs are need-based, while others have limited funding available, so it’s very common to come up short on college expenses even after you receive your financial aid award.  If you find yourself in this situation, don’t be disheartened because you can still look for a personal student loan to help finance your education.

Lender Direct
A personal student loan is made directly by a lender, based on their own terms and borrower qualification policies.  The interest rates are generally higher than government loans, but because they are not need-based, more students qualify to obtain one.  Some lenders will require a co-signor for loans above a certain amount, while others will underwrite a loan solely in the name of the student borrower.  Most lenders also offer some sort of loan program for parents, too, generally incorporating some sort of borrowing against home equity or other assets. 

Repayment Terms
As mentioned above, repayment terms and conditions vary from lender to lender, but there are some common policies that generally apply.  For example, many lenders require you to make payments on the interest portion of the loan while you are still in school, then add the principal portion on to the payment once you graduate.  Check with potential lenders for specifics about their policies and terms before you commit to any kind of borrowing. 

Loan Or Line Of Credit?
Some lenders offer both personal student loans and student lines of credit.  What’s the difference?  A loan is generally a lump sum amount that is borrowed all at once, with an accompanying repayment schedule outline prior to completing the transaction.  A student line of credit, on the other hand, will usually involve a credit limit but the student doesn’t have to draw against the whole limit all at once.  Repayment is usually handled similar to a standard revolving credit account, with monthly payments based on the interest rate and the balance owing on the account.