Private loans

When considering a private loan in lieu of federal loans, there are a number of questions to ask your loan provider that may help with your decision. Remember that while the interest rate is important, there are other factors to consider before you take out a private loan. Additionally, there are two principles to keep in mind about private loans and how they may impact your overall repayment strategy:

First, it is often best to pay down private loans as quickly as possible.

Second, borrowers with both federal and private loans who have monthly cash flow challenges may need to use the repayment and postponement flexibility provided on their federal loans to remain current on their private loans.

We suggest you contact the loan provider(s) for your private loans, or their loan servicer, to ask the following questions regarding your private student loans:

Interest Rate and Capitalization

  • What is the current rate being offered?
  • Is the rate variable or fixed, and if variable, is there a maximum (cap) and minimum (floor)?
  • If the rate is variable, how often is it reset and how does that impact your subsequent payments?
  • Does the rate increase when you enter repayment? (This is important to know.)
  • Are there any discounts on the rate you might be eligible for, such as ACH (automatic debit) or discounts for timely payment?
  • How often is accrued and unpaid interest added back to the principal of your loans (called capitalization), and is this more frequent during times of postponement? (This is important because it can cause private loan balances to grow dramatically.)

Repayment Options and Term

  • How long do you have to repay these loans?
  • Are there other repayment options such as “interest only” for a designated period of time, in case you need short-term help reducing your payments? What is the impact on your balance?
  • Are there any repayment options based on your income?
  • Can you target additional payments against the principal of your loans to pay them faster?

Postponement Options

  • How long can you postpone payments, if needed?
  • Is there a fee to postpone payments, and is this with a deferment or forbearance?
  • How do you renew your deferment or forbearance if you need to postpone for a longer period of time, and what are the implications for doing so?
  • Is there a fee to postpone payments on your private loans?
  • How often does interest capitalize during postponement?

Creditworthy Cosigners

  • Is there a cosigner required and what are the benefits of having a creditworthy cosigner?
  • Is there a cosigner release provision, and if so, how does it work?
  • Is there a minimum credit score and maximum DTI (debt to income) ratio you must meet to have your cosigner dropped from the loan?
  • If you are denied your request to drop your cosigner, can you reapply later?