For many college students, applying for student loans has become a rite of passage, along with learning how to pay for college, setting up a .edu email address and registering for classes. The Institute for College Access & Success reports that in 2012, nearly three-quarters of students graduating from four-year universities had student loan debt. These students averaged over $29,000 in debt, with private student loans accounting for 20 percent of their debt.
Federal and private student loans have a few notable differences. First, federal loans have some guaranteed consumer protections such as the option to temporarily defer or forgo payments and discharge of the outstanding balance upon a borrower's death. Private lenders are not required to offer this type of flexibility on student loans, but some do. Also, in some cases, the government will subsidize interest on federal loans while you're in school or forgive the balance after you've worked in public service for 10 years. Another key difference is that certain federal loans do not require cosigners, while some private lenders do.
Before you take out private loans, see how much money you can get from other sources such as grants, scholarships and federal student loans. "Generally you should be able to get enough federally," says Reyna Gobel, author of Cliff Notes Graduation Debt, Second Edition and a Forbes.com education contributor, "but if for some reason you get a great interest rate [on a private loan] or your school does not qualify for federal student loans, then it might make sense to take out private loans."
Gobel adds that most private student loans used to carry a variable interest rate, where the interest rate , but private lenders now offer variable and fixed rates. If you're planning to fund your college degree with private loans, it pays to shop around and compare options, as student loan interest rates can vary.
Here's a collection of fixed and variable rate private student loan products to consider. According to the New York State Higher Education Services Corporation (HESC), none of these loan options have origination fees; however, depending on the lender there may be fees for missed payments or other issues.
- Union Federal
Through its Private Student Loan, Union Federal offers variable-rate loans to undergraduates starting at just north of 3 percent. For immediate repayment, the interest rate ranges between 3.31 and 6.04 percent, reports HESC as of August 2014. The interest-only student loan interest rate ranges between 3.57 and 6.52 percent, while Union Federal's Student Starter loan ranges between 3.61 and 6.80. Union Federal also offers a 1 percent principal reduction per loan at graduation and offers .25 percent reductions for automatic loan withdrawals and consistently making on-time payments.
SunTrust's Custom Choice Loan is available with fixed or variable interest rates. According to SunTrust's website (accessed in August 2014), variable rate loans start at 2.491 percent APR (with immediate repayment) to 8.009 percent APR (with deferred repayment), while fixed rates range from 4.001 percent APR (with immediate repayment) to 9.771 percent APR (with deferred repayment). The loan principle can range from $1,001 to $65,000 annually.
- PNC Education Lending
The PNC Solution Loan for undergraduates offers loans with fixed or variable interest rates and terms of up to 15 years. Variable rate loan interest rates with immediate repayment range from 3.45-10.40 percent, while fixed rates with immediate repayment range from 6.49-12.99 percent. According to the monthly payment calculator on PNC's website, for instance, if you borrowed $5,000 with immediate repayment at an interest rate of 3.5 percent over five years, your monthly payments would be $90. With an interest-only loan for the same amount and terms, you'd pay $14 per month while in school and $90 after graduation.
- Wells Fargo
Wells Fargo offers private student loans for traditional four-year colleges (a collegiate loan) and career and community colleges. Discounts are available for having a previous Wells Fargo student loan or other qualifying account or enrolling in automatic payments. According to the Well Fargo website, collegiate loans range from 2.93 percent (with discount) to 8.6 percent (without discount) APR for a variable rate or 6.17 percent (with discount) to 10.93 percent (without discount) APR for a fixed rate. For career and community colleges, the variable rate ranges between 4.09 percent (with discount) to 10.01 percent (without discount) APR and the fixed rate is between 6.80 percent (with discount) to 11.93 percent (without discount) APR. "Prudent underwriting and providing quality timely information, transparency, round-the-clock service for each customer, and financial education has allowed for 98 percent of our private student loan customers to be current with their loan payments," says John Rasmussen, Head of Wells Fargo's Education Financial Services.
- Citizens Banks
Citizens' TruFit Student Loan offers discounts for enrolling in automatic payment and/or (through August 31, 2014) if you or your cosigner has another TruFit Student loan or qualifying account. "In general, the interest rates for undergraduate loans range from 2.65 to 9.40 percent for variable rates, and from 5.75 to 11.75 percent for fixed, based on credit, presence of a co-signer, repayment terms and repayment option chosen," says Steve Sylven, a spokesperson for Citizens Financial Group. For instance, according to the repayment examples on Citizens' website, if you borrowed $10,000 over 15 years with a fixed 7.25 percent interest rate, your monthly payments would be $90.22 with immediate repayment or $126.09 with deferred payment. With immediate repayment, the total payback would be $16.239.11 compared to $22,693.17.
- Sallie Mae
Sallie Mae's Smart Option Student Loan for undergraduates carries variable rates of 2.25-9.37 percent APR and fixed rate of 5.74-11.69 percent APR. It offers a rate reduction (of 1 and .5 percent, respectively) for monthly in-school payments of interest only or $25. "This is part of our commitment to promote responsible borrowing, and half of our customers elect these options to reduce the amount of debt they will owe come graduation," says Sallie Mae spokesperson Rick Castellano. Borrowers can also reduce their rate by .25 percent by enrolling in automatic payments and get 2 percent back through the Upromise Smart Rewards program for making on-time payments while in school.
Discover offers undergraduate loans with a fixed interest rate of 5.99 to 11.24 percent APR or a variable rate of 2.99 to 8.49 percent APR (all carry a 15-year repayment term). The company also gives borrowers the option to pay $25 monthly while in school to lower their total payments. Discover also offers a one percent cash reward for good grades, which is "based off the disbursed principal loan balance," according to Discover spokesperson Robert Weiss. "Students with at least a 3.0 GPA (or equivalent) can qualify for a one-time cash reward on each new Discover student loan. Eligible students will receive a check for one percent of the disbursed loan balance."
The actual student loan interest rates you receive may vary depending on factors like your chosen loan term (typically 5, 10 or 15 years), your credit history or that of your cosigner, any discounts available and the repayment schedule you choose, so do your homework to find the loan that makes the most financial sense for your situation.
1. Citizens Bank, http://www.citizensbank.com/student-loans/undergraduate-private-loans.aspx
2. Citizens Bank Trufit Student Loan, https://www.citizensbank.com/trufitstudentloan/default.aspx#Repayment_Examples
3. Comparison of Federal and Private Student Loans, https://www.discover.com/student-loans/compare-loans.html#1
4. Consumer Financial Protection Bureau, http://www.consumerfinance.gov/askcfpb/545/what-are-main-differences-between-federal-student-loans-and-private-student-loans.html
5. Discover Undergraduate Loans, https://www.discover.com/student-loans/undergraduate-student-loans.html
6. John Rasmussen, Head of Wells Fargo's Education Financial Services, interviewed by the author via email 8/7/2014
7. New York State Higher Education Services Corporation, http://www.hesc.ny.gov/content.nsf/SFC/Private_Student_Loan_Comparison_Tool
8. PNC Education Loan Center, http://www.pnconcampus.com
9. Reyna Gobel, author of Cliff Notes Graduation Debt, Second Edition, interviewed by the author via phone 8/8/2014
10. Rick Castellano, Sallie Mae spokesperson, interviewed by the author via email and phone between 8/12/2014 and 8/14/2014
11. Robert Weiss, Discover spokesperson, interviewed by the author via email 8/14/2014
12. SallieMae Private Student Loans for Undergraduates, https://www.salliemae.com/student-loans/
13. Steve Sylven, a spokesperson for Citizens Financial Group via email between 8/12/2014 and 8/13/2014
14. SunTrust, http://www.suntrusteducation.com/PrivateLoans/CustomChoiceLoan/index.html
15. The Institute for College Access & Success. 2014. Quick Facts about Student Debt, http://bit.ly/1lxjskr
16. Union Federal Private Student Loan, http://www.unionfederalstudentloans.com
17. Wells Fargo Collegiate Loans, https://www.wellsfargo.com/student/collegiate-loans/
18. Wells Fargo Student Loan for Career and Community Colleges, https://www.wellsfargo.com/student/community-college-loans/