Private loans allow you to borrow up to your Cost of Attendance (COA) for any education-related expenses, including tuition, books, room and board. You should only borrow what you need since you will have to pay it all back. Once approved, a check arrives in the mail within days directly to you – not to the school.
More details on private loans...
Private loans usually consist of a principal (eg, $10,000), an interest rate (eg, 9%), and an origination fee (eg, 4%). The principal is the amount of money you get. The interest rate is the amount by which the principal increases until you pay it back. The origination fee is a one-time cost that lenders charge; it can be thought of as a processing fee and is typically added to the loan amount. There are various monthly payment calculators that can help you compare the different private loan offerings.
Most lenders allow 3 options of repayment:
- Immediate repayment – monthly payments begin while you are in school. When you graduate, your loan balance will be less than $10,000 (since you paid off some of the principal and the accruing interest)
- Interest only payments – monthly payments begin while you are in school. When you graduate, your loan balance will be $10,000 (since you paid off the accruing interest)
- Deferred loan – monthly payments do not begin until ~6 months after you graduate. When you graduate, your loan balance will be greater than $10,000 (since interest accrued in college)
Most students elect to take out private loans for each year of attendance, since interest begins accruing at loan disbursement.