Preparing for college is no easy feat. You're probably feeling excited, overwhelmed, and maybe a little confused about the whole college planning process. You're also probably thinking about how you're going to pay for college. There are many different options including financial aid, scholarships, and college savings — but what if that's not enough to cover the cost of college? That's where private student loans can come in. It may seem like a complicated topic, but we're here to help. In this article, we'll answer the following questions:
The two main types of student loans are:
Before applying for a private student loan, you should always start by filling out the Free Application for Federal Student Aid (FAFSA) to see what financial aid you may be eligible for. After deducting that amount, you'll have a better idea of how much you'll need to cover the rest of your college costs.
Private student loans are usually used to help bridge the gap between the cost of attendance (COA) and other financial aid you may receive. Your COA isn't limited to tuition — it includes other expenses associated with being a college student, such as books and supplies, housing, food, and transportation. If your total COA is covered by financial aid like federal student loans, scholarships, and grants, you don't need a private student loan. However, if there's a shortfall, you may need to consider one.
Eligibility requirements vary and most private lenders offer a variety of options when it comes to private student loans. There are private student loans for undergraduate students, but also specialized student loans for graduate students and even medical and dental school students. There are also options for parents to take out private student loans on behalf of their student.
Banks and other lenders consider a variety of factors when determining if you're eligible for a private student loan, including if you're attending an eligible school, if you meet enrollment criteria, your credit score, income, and if you meet the debt-to-income requirements (this is usually something only parents/cosigners need to worry about).
To obtain a private student loan, applicants pursuing an undergraduate degree often need a cosigner to have a higher likelihood of loan approval. At Citizens, 98% of undergrad student loans are cosigned.* Any person with a qualifying credit score and who meets the lender's cosigner requirements can cosign the loan, but it's usually a parent or guardian who will take on that responsibility. The cosigner will have to pay for the loan in the event the student can't or doesn't, so it's important to have a plan for repayment.
The application process for private student loans may differ from lender to lender, but here is a general checklist of what you need to do:
Most private student loans max out at your college's COA minus other financial aid. There may be borrowing limits for each lender as well. For example, let's say your college costs $50,000 per year and you have $40,000 available from financial aid and college savings. You would need another $10,000 and could apply for a private student loan to help cover that amount.
It's important to only borrow what's needed — you don't want to pay back more than you absolutely have to! Private student loan lenders typically certify the loan amount with the college to ensure you don't take out a bigger loan than necessary.
Some lenders may give you the option to borrow by semester or by the full school year. It's usually recommended to take out the loan for the full school year instead of taking out two loans, one for the fall semester and one for the spring semester. It can save you time, simplify the process, and you'll also have one less credit check for that year.
Some financial institutions, like Citizens, offer multi-year approval*, which may make things easier. With multi-year approval, you'll only need to fill out the application once, and the lender will decide how much money you're qualified to borrow. When your next school year rolls around, you won't have to fill out a new loan application. Instead, if eligible, you'll just request additional funds from your lender, and they'll do a soft pull of your credit, just to make sure that your income and other factors haven't drastically changed. Once that's confirmed, you can request the amount you need from your remaining balance.
Depending on the type of loan and the lender, there are a few different repayment types and repayment terms that you may be able to choose from. Some repayment types are:
Compared to deferred repayment, the interest-only and immediate repayment options may help you save money on interest over the life of the loan and could result in a lower monthly payment after you graduate. Another factor to consider, for both interest-only and immediate repayment, is that it creates an opportunity for students to build their credit score earlier by making on-time payments on their private student loan while still in school. Whatever repayment option you choose, your decision should be based on your ability to repay the loan.
There may be options for the repayment term as well, which is the length of time the borrower has to repay the loan. You'll also want to pay attention to whether your loan has a fixed or variable interest rate. A fixed rate means that you'll have the same monthly payment for the duration of the loan. A variable interest rate is tied to market conditions, so your loan payment will fluctuate for the duration of the loan as interest rates change.
This is another decision that will vary based on whatever loan is the best fit for you and your financial situation. Some factors you should take into consideration are:
Hopefully by answering these questions, you'll be able to decide which loan is best for you and your college journey.
There's a lot to consider when you or a family member are about to take out a private student loan — they're a big commitment with lots of different options. We've been helping families afford college for over 40 years, so we're happy to offer some of our best-in-class advice. Head to our Student Loans for more tips and to see our latest rates and information.
The criteria may differ from lender to lender, but most of them will look to make sure you're attending an eligible school, you meet the enrollment criteria, have a qualifying credit score, and that you meet the income and debt-to-income requirements.
Your loan can be disbursed directly to the school or to you, and then you pay the school. Usually, lenders send private student loan funds to the school. Your college will then apply that money to your tuition, fees, room and board and other expenses. If you have any remaining funds, you can use those toward approved education expenses.
Approved education expenses typically include tuition and fees, room and board, books and supplies, off-campus housing, transportation, and other necessary equipment.
This is a tricky one because interest rates vary by lender and change over time. There are also many other factors that impact the interest rates on private student loans. You can typically find the lowest and highest ends of the interest rate range on lenders' websites. You can get a rate quote from Citizens in about two minutes from Citizens in about two minutes with no impact to your credit score.*
The cost of college can be stressful, but scholarships can help. Loans are helpful to bridge gaps, but there are other ways to afford the cost.
Timing is key for private student loans. Learn when to apply and what needs to be completed first.
Learn about cosigners, how they help, and if adding one to your student loan is right for you.
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* IMPORTANT INFORMATION:
98% of Citizens Undergrad Booked Loans from 6/1/24 through 9/30/24 were cosigned.
Co-signer Release: Borrowers may apply for co-signer release after making 36 consecutive on-time payments of principal and interest. For the purpose of the application for co-signer release, on-time payments are defined as payments received within 15 days of the due date. Interest only payments do not qualify. The borrower must meet certain credit and eligibility guidelines when applying for the co-signer release. Borrowers must complete an application for release and provide income verification documents as part of the review. Borrowers who use deferment or forbearance will need to make 36 consecutive on-time payments after reentering repayment to qualify for release. The borrower applying for co-signer release must be a U.S. citizen or permanent resident. If an application for co-signer release is denied, the borrower may not reapply for co-signer release until at least one year from the date the application for co-signer release was received. Terms and conditions apply. Borrowers whose loans were funded prior to reaching the age of majority may not be eligible for co-signer release. Note: co-signer release is not available on the Student Loan for Parents or Education Refinance Loan for Parents. 98% of Citizens Undergrad Booked Loans from 6/1/24 through 9/30/24 were cosigned. Citizens Undergraduate Booked Loans from 10/1/2023 through 9/30/2024 were 4 times more likely to be approved with a qualified cosigner.
Multi-Year Approval: Funds available for future use are subject to a soft credit inquiry at time of your next request to verify continued eligibility. After we make the initial Loan to you, you must continue to meet eligibility criteria to obtain additional funds under the Multi-Year Approval feature. Terms and conditions are outlined in the promissory note. Multi-Year Approval borrowers have a 99% approval rate on future requests for additional funds. The additional funds approval rate is based on the percentage of approved Multi-Year borrowers from Citizens between October 1, 2023 and October 1, 2024. The approval rate represents only borrowers who had previously accepted the Multi-Year Approval offer. Please Note: International students are not eligible for Multi-Year Approval.
Get My Rate: Selecting "Get My Rate" only requires a "soft credit pull" which does not affect your credit score. Submitting a full application will result in an inquiry on your credit report.
Disclaimer: The information contained herein is for informational purposes only as a service to the public, and is not legal advice or a substitute for legal counsel. You should do your own research and/or contact your own legal or tax advisor for assistance with questions you may have on the information contained herein.