Non-Federal Private Student Loans
It is extremely important from a personal finance standpoint that you first exhaust ALL possible grant and scholarship possibilities prior to considering a non-federal private student loan.
We advise you to only borrow what is truly needed to pay for qualified educational expenses. When borrowing to finance your education, you should give serious consideration to the loan amounts needed throughout your entire education.
You will want to make sure you can comfortably afford your student loan indebtedness based on your expected income upon entering repayment, as well as make sure you are comfortable with the estimated expected monthly payment.
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Many students, particularly undergraduate students, will likely need to find willing, creditworthy individual(s) to co-sign their non-federal private education loan applications to increase the likelihood of being approved and getting the best pricing and terms.
What are Private Student Loans?
Private student loans are credit-based loans applied for through individual banks that help students “bridge the gap” between the financial aid they have been awarded and any additional amount they feel may be needed to help achieve their educational goals. Being approved for a Private Student Loan depends largely on the credit score of the borrower (and co-signer). With the continuation of tightened credit markets, the largely held belief is that the majority of students applying for Private Student Loans will need co-signers on the application in order to get approved. While rates and repayment terms on Private Student Loans typically aren’t as solid as those offered on the various federal students loans, potentially using Private Student Loans (if you are able to obtain an interest rate at a much more favorable interest rate than the Direct PLUS or Grad PLUS) are often a wiser financial decision to “bridge the gap” than using credit cards or home equity lines of credit. However, it is ultimately the responsibility and choice of the borrower (and co-signer) to make the best personal financial decision.
Who Should Consider Non-Federal Private Student Loans?
Private student loans may be an important source of funding for students who are in one of four situations, either 1) ineligible for federal student loans, 2) in need of loan funding beyond that which federal programs permit during the year, or 3) owe a balance to The University of Mississippi which occurred in a prior academic year, or 4) may be able to obtain a lower interest rate on a private loan than on a federal Direct PLUS or Grad PLUS Loan.
In the case of the upcoming 2019-2020 academic year, a prior year balance would be any balance on a student’s bursar account that was incurred on or before August 23, 2019.
As of July 1, 2008, federal legislation forbids an institution from using financial aid funds from a current academic year to pay a prior year (including most recent loan period) balance in excess of $200. If you fall into this category and are unable to pay the prior year balance out of pocket, then you will need to consider applying for a private student loan to cover the prior year balance.
When comparing costs of Private Student Loans, students and co-signers should consider:
Fixed or Variable Interest Rate? Having a fixed rate loan means that the interest rate on your loan never changes—it stays fixed throughout the life of the loan. A variable interest rate is one that changes throughout your loan term and is dependent upon another number—either the London Interbank Offered Rate (LIBOR) or Prime Rate. LIBOR is the average interest rate that leading banks in London charge when lending to other banks. The Prime Rate is the interest rate that commercial banks in the United States charge their most credit-worthy borrowers, and is a figure largely determined by the Federal Funds Rate (the overnight rate at which banks lend to one another). For a variable rate loan, you would be charged a certain percent above LIBOR or Prime, so your rate would change on a monthly basis to reflect the current LIBOR or Prime. Usually, a fixed rate is a little higher than a variable rate, as the fixed rate doesn’t fluctuate with the economy, while the variable rate may be lower as it is reliant upon an economic indicator.
When considering repayment, students and co-signers should consider:
- Is there a grace period after graduation?
- How long is the standard repayment term, and what options exist?
- Who will service my loans once they enter repayment?
- What deferment or forbearance options may be offered?
- Will the loan be eligible for loan forgiveness and under what circumstances?
- Federal Loan Forgiveness Possibilities: http://www.finaid.org/loans/forgiveness.phtml
Do I need a “co-signer” to apply for a Non-Federal Private Student Loan?
While there is no requirement to apply with a creditworthy co-signer, doing so often increases both your chances of being approved for a Private Student Loan and potentially lowers front-end fees and interest rates. Most lenders require student borrowers themselves to have an excellent credit history among other criteria, so it is in your best interest to have a knowledgeable and willing co-signer assist you in applying for a Private Student Loan in most cases. Understanding that co-signers don’t want to feel financially responsible throughout the life of the loan (in the event the actual borrower defaults), many lenders now offer “co-signer release” options after a certain number of on-time payments have been made, once the borrower passes a credit check at that time.
Regulation Z Requirements
- Private Loan Regulations (Title X of the Higher Education Opportunity Act)
On February 14, 2010, both private lenders and institutions offering private loans to students must comply with regulations per the Federal Reserve Board.
Under the new laws, a lender offering private loans for postsecondary educational expenses must first provide a disclosure about loan terms and features at the time of application and must disclose information about federal student loan programs that may offer less costly alternatives. If the initial application reaches an approval status, a second loan disclosure statement must be provided to the student at that time. If a student accepts the loan terms provided in the second disclosure statement, a third final disclosure must be provided when the loan is consummated.
An additional piece of the new private loan regulations requires an applicant to complete a “self-certification form” and return it to the lender before they may disburse the loan to the school. The “self-certification form” may be found on the lender’s website or you may complete the hard copy found here and return it to your lender. If you need assistance completing the form, please visit the Office of Financial Aid at Ole Miss.
Each private lender may have a slightly different application process, so it is best to contact your private loan lender directly if you have any questions.
Last, a lender must provide the student with a 3 day rescission or “right-to-cancel” period after the final loan disclosure form is sent to the student. The 3 day rescission period means that once the school has certified your loan and it is ready to be disbursed, there is a mandatory 3 business day waiting period before the lender may disburse loan funds to the school. If a lender only offers a mailed Final Disclosure (not online), then they must wait 6 days to disburse the loan to the school (3 days for mail time and an additional 3 day “rescission or “right-to-cancel” period).
- Private Loan Regulations (Title X of the Higher Education Opportunity Act)
Below is an example of what to expect if you apply for a private loan:
- Apply online (you will receive the Application Disclosure Statement)
- Complete the Self-Certification Form and return to your lender
- If approved for the loan, you will be provided an Approval Disclosure Statement
- Finally, you will receive a Final Disclosure Statement (allowing you up to 3 days to cancel the loan before it is disbursed to the school)
How do I apply for and process a Non-Federal Private Student Loan application?
- Make sure you have completed the FAFSA and accepted your annual maximum in federal student Stafford Loans, and exhausted all other financing options first.
- Consider applying with a willing, creditworthy co-signer, as doing so will likely increase your chances of approval and potentially lower your interest rate.
- Carefully review the Ole Miss ELM Select Private Lender List to compare loan products, and apply for the product that best suits your eligibility and needs.
- Submit the completed Self-Certification Form.
- The lender with whom the student and/or co-signer apply will conduct a pre-approval credit investigation and notify the applicant(s) as to approval or denial. If approved by a lender for a Private Student Loan, the student and co-signer will need to review the Master Promissory Note (MPN) for accuracy, sign, and return to the lender. However, most lenders offer an e-sign option online.
- Loan proceeds will be sent directly to the University. The proceeds will be applied to the student account to clear any balances, and remaining funds will be direct deposited or mailed directly to the borrower if direct deposit is not setup.
(While many private lenders require no monthly payments during both in-school and grace periods, we highly recommend making at least interest-only payments, if possible, to reduce the amount of interest that will be capitalized when the loan enters repayment.)
To learn more about exactly how our office decides which lenders to deem “lender partners,” please visit https://www.olemiss.edu/depts/financial_aid/lenderlistpolicy.html . It would be wise to plug-in various loan offerings into an online calculator to help you and your family analyze which loan product may be best in your situation http://www.youngmoney.com/loan-comparison-calculator/ .
We recommend you request a free copy of your credit report from each of the three credit bureaus (Equifax, Experian, and TransUnion), at www.annualcreditreport.com, as you are entitled annually by law. While you must pay a fee to each of the three credit bureaus to obtain your actual credit score(s), it is important to at least check your credit report(s) annually for any errors or illegal use.