When it’s time to pay for college... the money can come from many sources: grants, scholarships, family contributions, and student loans. When taking out a student loan, you should carefully compare all your options, including both private and federal student loans.
Private student loans are becoming ever more competitive with federal student loans and they provide a chance to work with a bank that can help you manage your ongoing financial needs.
What is a private student loan?
A private student loan helps students and their families cover costs related to education. Features vary from lender to lender. Wells Fargo private student loans provide:- Borrowing limits designed to cover eligible education; expenses including tuition, living expenses, or books;
- Competitive interest rates, including fixed rate options;
- Options to lower your interest rate;
- Deferred payments while in school on most loans;
- Easy application process.
Some private loans, like the ones from Wells Fargo, are available even if you are attending less than half-time, or seeking a license or multi-course certificate. Some loans allow you to postpone payments if you return to school.
What you need to know
There are several terms that you should understand before you borrow a private student loan:
- Most private loans are credit-based which means your interest rate will be based on several factors, including your and/or your cosigner’s credit profile — better credit typically means a better rate.
- You may also have the choice of a fixed interest rate or a variable interest rate loan. With a variable interest rate loan the interest rate is subject to change with the market. Your rate can go up or down until the loan is completely paid off.
- With a fixed interest rate the interest rate remains the same over the life of the loan.
- Interest is added to the amount of money that you borrow as soon as the first loan check is sent, this is called interest accrual.
- Since the majority of private student loans are credit-based, most undergraduate students will likely need a cosigner to qualify. A cosigner is a person who agrees to assume equal responsibility for repayment of your private student loan. A cosigner may improve your chance of approval for your loan, and may also help you secure a lower interest rate. Your cosigner doesn’t have to be a parent; it can be anyone willing to help you pay for your education.
Do your researchBecause private student loans differ from lender to lender, it’s important to ask questions when looking for a private student loan so you can compare loans and choose the one that best fits your needs.
Here is a checklist of things to consider:- What is the interest rate? The APR?
- Do I have a choice between fixed or variable rates?
- Prime Rate or LIBOR?
(Both are interest rates that lenders base your loan on. To see the difference, check out the money rates table published in The Wall Street Journal: wsj.com.) - Will I need a cosigner? Can the cosigner be released?
- Are there any fees?
- What are the enrollment requirements? Do I have to be at enrolled at least half-time?
- What are the program requirements? Is my program eligible? Do I need to be degree-seeking?
- Will I need to make payments while I’m in school?
- Is there a minimum or maximum amount I can borrow?
- Does the lender offer interest rate reductions or other incentives to borrowers?
You’ll want to plan ahead when taking out student loans so you know how much to budget for repayment. You should compare your estimated monthly payment with your estimated monthly income. Ideally, student loan payments should be 10 – 15 percent or less of your net monthly income. The chart at the below outlines monthly payment amounts for private student loans, based on the total amount you borrow and the interest rate.
| Balance | Number of payments | Annual Percentage Rate | ||
|---|---|---|---|---|
| 5.00% | 9.00% | 14.0 0% | ||
| $5,000 | 129+ | $50.19 | $60.63 | $75.17 |
| $20,000 | 180 | $158.16 | $202.86 | $266.35 |
| $50,000 | 180 | $395.40 | $507.14 | $665.88 |
| $100,000 | 180 | $790.80 | $1,014.27 | $1,331.75 |
Before signing the student loan promissory note, carefully consider these rights and responsibilities. It’s to your benefit to clearly understand all aspects of the loan and its repayment requirements.
When choosing a student loan, make the choice that works for you by carefully comparing all your options. No one loan is right for everyone. Compare features, services, interest rates, discounts and benefits. When you do, you’ll see that Wells Fargo provides a variety of ways for you to cover your costs, and work with a full-service bank.