Loans made by banks or other private lenders without any government subsidy. These also are sometimes called signature loans or alternative loans. The Project on Student Debt has a useful Q&A on private loans.
Back to top How much can I borrow in a private loan?
Each lender's terms are different. Some will lend the student's cost of attendance; others have a cap of $40,000 a year or less.
Back to top How much do private loans cost? *Updated
It depends. In the summer of 2008, lenders were offering borrowers with top credit introductory interest rates around the Prime rate. But those rates went only to those who had already established excellent credit or got a parent or some other adult with excellent credit to guarantee (or "cosign") the loan. Since those rates are variable, they will rise if the Prime rate jumps up, as it generally does from time to time. U.S. News offers a web tool to help you shop for private loans. Taxpayers with low and middle incomes can deduct their education loan interest payments, further reducing the cost of the loan. Virgin Money, Fynanz, and Greennote have launched new services to help friends and relatives lend to each other at lower rates.
Back to top Who makes private loans? *Updated
Banks, private lenders, nonprofits, and possibly your friends or relatives. To search the Web for private loans, click here http://www.simpletuition.com/usnews/home. If you can find a friend or relative to lend you the money, consider Virgin Money, Fynanz, or Greennote
Back to top How do I get a private loan?
You must fill out an application with your chosen lender and notify your school. The school will want to make sure you've exhausted all other financial aid options before turning to these loans, which are generally rather expensive.
Back to top Does everyone get approved for a private loan?
No. In 2008, turmoil on Wall Street forced lenders to become much more picky about whom they'd make a private loan to. Students who want to borrow money on their own--without getting someone else to promise to make payments if they don't—will probably have very little luck finding a private loan.
Back to top What happens if I get rejected for bad credit?
If you can find someone with good credit to cosign, which means committing to repaying the loan if you can't, you can reapply.
Back to top What happens if I get rejected because the lender just doesn't want to make any private loans?
You can keep searching for other lenders, using services such as Graduate Leverage. One way to avoid this problem is to avoid the lenders who've already announced they are suspending or ending their education loan programs. Lists can be found through FinAid and the National Association of Student Financial Aid Administrators.
Back to top How is the credit crunch affecting private loans?
Many lenders have stopped making loans, because investors are charging them very high prices for the funds they want to lend out to parents. As a result, many counselors are advising students to line up a lender, apply for their loan, and lock in terms as soon as possible. They recommend you get your application in at least a month before classes start.