Personal college loans are similar to private and alternative loans, in that they are provided by credit unions, banks, and other private entities and go directly into the hands of the borrower. However, whereas private loans are designed to pay tuition fees, personal student loans cover other college expenses. A personal student loan may cover the cost of housing, travel, laptops or computers, textbooks, and other supplies. In fact, the borrower is able to spend the money however they choose because the money is not dispensed through the university as it would be in a federal loan.
Personal loans are more difficult to come by than other loans, as they are less prevalent and usually have strict qualification requirements. Lenders will only consider students who either have acceptable credit scores or a credit-worthy cosigner. The student and their cosigner will need to sign a legally binding contract agreeing to their financial responsibility for the loan — including interest — until it is repaid in full. The lender will also likely want to see proof of the student’s personal income. Naturally, all personal student loan candidates must be enrolled in a degree program at a college or university in at least a half-time status.
Repaying a Personal Student Loan
Repayment plans for personal student loans depend largely on the private lenders’ policies. Determining factors will include the interest rate, the student or cosigner’s credit history, what the loan is being used for, and the total amount borrowed. In a personal loan, interest begins to collect at disbursement and is added to the loan principle if the student defers. Students can often reduce their loan fees if they choose to have their monthly payments automatically withdrawn from their bank account at each pay period. They may also be able to negotiate lower interest rates if they use a cosigner with admirable credit history. Students should pay attention to clauses in their loan agreement such as early repayment penalties, which charge a fee when a student makes a payment on their loan before it is due each month. Lastly, a borrower may never default on a personal student loan.
Types of Personal Student Loans
- Wells Fargo Collegiate Loan: Wells Fargo offers a personal student loan that may be amounted toward tuition or other school costs, including study abroad programs. The grace period extends until six months after the student graduates, with no origination fees. The aggregate loan limit is $120,000.
- Discover Undergraduate Loan: Discover’s undergraduate loans cover up to 100% of tuition, books, housing, and other educational expenses with rates fixed at 6.79% APR. So long as the student is enrolled in at least half-time status, they needn’t make payments until after they graduate.
- Sallie Mae: Sallie Mae’s Smart Option Student Loan allows for flexible repayment options, such as deferred repayment plans, fixed repayment plans, and interest repayment plans. Students may also pay while they are in school or wait until after graduation. While they may borrow as much money as necessary to cover their educational needs, students must borrow at least $1,000.