Private student loans don’t have to follow all of the rules of federal student loans. For example, interest rates, borrowing limits and repayment terms can vary from lender to lender. A student can get a private student loan without a cosigner, but good credit is required. Lenders have tightened up their lending standards as a result of the credit crises and downturn in the economy from several years ago. Still, some students, especially graduate students or older undergraduate students with more established credit, can get a private student loan. Companies like Sallie Mae, Citibank and Wells Fargo, offer competitive interest rates and repayment terms that rival the Stafford and Perkins loans. Listed below are the pros and cons of getting a private student loan. The list may not apply to every lender, but they are general characteristics for most companies specializing in private student loans.
Pros
- Lower interest rates
- No origination fees
- Higher loan limits
- No cosigner needed if you have good credit
Cons
- Cosigner needed if credit is not good
- Some require payments immediately following the first loan disbursal
- Interest accrues immediately following the first loan disbursal
- Some lenders may not offer flexible repayment plans
Advantages (Pros)
Private student loans usually set borrowing limits to the “cost of attendance” as determined by the school where the student is enrolled. Interest rates are set by each lender, and aren’t subject to the regulations and changes made by the federal government. Many private lenders don’t have fees taken out prior to disbursement, so students will have the entire amount available to use. More importantly, students with good credit will be able to take out a student loan without a cosigner.
Disadvantages (Cons)
Tighter lending standards have made it difficult to get a private student loan without a cosigner. Some private lenders also expect repayment to begin as soon as the first loan funds are disbursed, but many lenders allow the in-school deferment, so students don’t have to make payments until they graduate. The interest on private student loans also begins to accrue once the loan funds are disbursed. Also, private lenders may not offer the same repayment flexibility as federal student loans do.
Should I Take Out a Personal Loan?
Many students may consider taking out a personal loan to pay for college expenses. Personal loans are very different from both federal and private student loans. The table below illustrates some of the differences between personal loans and student loans.
| Personal Loans | Student Loans (Federal or Private) |
|---|---|
| Money can be used for anything | Money must be used only for tuition and other related expenses as a result of attending college |
| Repayment begins immediately | Most repayment begins upon graduation |
| Interest accrues immediately | Subsidized loans don’t accrue interest until graduation |
| No restrictions on enrollment | Student must be enrolled at least half-time – Some lenders require full time enrollment |
| No restrictions on grade point average | A minimum grade point average must be maintained to keep getting additional loans |
| Good credit or a cosigner with good credit is needed | Bad credit is ok, and no cosigner is needed for federal loans |
Only you can determine if a personal loan is the right loan to use for your college expenses. Be cautious, however, and be ready to begin paying on your personal loans immediately.
The Bottom Line
Many students looking to establish their own credit history should consider taking out student loans without a cosigner. It’s a great way to get a loan in their name and begin establishing a positive credit history with successful repayment after graduation. The Stafford and Perkins loans are the two types of federal loans students can take without a cosigner. Private student loans and personal loans require good credit in order to avoid needing a cosigner. Many lenders specializing in private student loans, like Sallie Mae, Citibank and Wells Fargo, will each have different criteria and loan rates for getting a private student loan without a cosigner. In any case, whether you have good credit or bad credit, getting the money you need for college does not have to depend upon your credit history or the need for a cosigner.