What are the qualifications for private student loans?
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UPDATED: Jan 19, 2012
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Unlike their federal counterparts, private student loans are not restricted to individuals whose families make a lot of money or who do not necessarily have financial need. In fact, credit score is the most important factor to private lenders, and a high credit score signifies a better chance of qualifying for private student loans.
This type of education financing is traditionally used as a supplement to federal student loans since the government-backed lending usually carries lower interest rates. Consequently, it would be in a student’s best interest if they first look into how much, if any, government-backed loans they can qualify for.
After receiving federal financing, if a student still needs extra money to fund their pursuit of a degree, private student loans can be sought.
Those with higher credit scores will qualify for more amount of money at lower interest rates. Since so many college students have little to no credit history, obtaining a co-signer can help tremendously. If parents are willing and able to co-sign on their children’s student loans, the student may wind up saving thousands of dollars in interest payments.
However, such a move shouldn’t be made without considerable thought. If a student defaults on their student loans, the co-signer will be pursued for the balance. Even years down the line, after a student has moved out of their parents’ home, have a family of their own, and are no longer in college—if that student defaults, the cosigner’s credit will not only take a hit, but he or she will be looked at as a primary borrower. As a result, they will need to fork over money in order to satisfy their child’s borrowing.
The nice thing about co-signing, though, is if a parent trusts their children and feels they will be a responsible borrower, they can ensure their child receives a low interest rate. Then, a few years down the line after the child establishes credit history and has demonstrated reliable and on-time loan payments, the co-signer can be released from their co-signing obligations.