College is expensive – no secret there. How expensive? That all depends on the school’s tuition rate, the price of room and board, and the cost of texts and other essentials. If you’re considering a 4-year private intuition can expect to pay around $50,900. Thinking of a public intuition?  If it’s in your state, you can expect to pay around $25,290. If it’s out of state, the cost jumps to $40,940 according to LendEDU college cost statistics.

How will you pay for it?  If you’re like nearly 70% of today’s students, you’ll need to rely on student loans to some extent if not fully. That may mean filling out the Free Application for Student Aid (FAFSA) and applying for federal student loans. In some cases, it may mean turning to private lenders for a private student loan. In fact, you may even find that you need to do both.

Both federal loans and private loans can help cover tuition, especially in such a costly market. Despite being counterparts, qualifying for a private loan differs considerably compared to a federal loan. Whereas federal options require the FAFSA and the intent to go to school, private student loans require applicants to bring more to the table.

If you find you’re in a pinch to cover tuition, then it pays to know what a private student loan application requires in terms of credit, eligibility, and more.

Must Have at Least a Good Credit Score

Private lenders use a credit score to help determine eligibility, and it influences rates and terms for private student loans. Contrarily, the U.S. Department of Education doesn’t typically base eligibility for federal student loans on credit history — Parent PLUS loans are an exception.

If you have a good score and track record managing debt, then you will typically have better access to private student loan products. A better credit score can increase the likelihood of receiving better rates and terms. Broadly speaking, most lenders require borrowers to have scores in the high 600s, but many prefer higher credit scores in the 700s or 800s. A low score can influence a dropped application, and it can also lead to higher rates and limited terms on an accepted application.

If you’re considering a private loan, it’s important to check your credit score. Things like late payments, defaulted accounts, a high debt-to-income ratio, or revolving debt totals that exceed 30% of your available credit can all bring your score down. To keep your score healthy, make it a point to pay bills on time and keep your debt in check as a general rule of thumb.

Need to Meet Income Requirements

Another important factor that lenders consider is the borrower’s income. This can be particularly frustrating to new students who may not have the time or skill set to earn a substantial income. After all, access to higher paying jobs is often a leading reason to go to college in the first place, but your future income may not help you take out a loan today depending on the lender.

That’s not to say that you’re out of luck until you graduate. If you’re making an income, even from a part-time job, it may still be able to help on an application. Many lenders look at your income as it relates to your debt. A low debt-to-income ratio can help you secure lower rates. A higher ratio will make it more difficult to be approved and if you are, your rates will likely be higher. At any rate, this can be an especially prohibitive criterion, so you may want to consider applying with a cosigner if this were the case.

Enrollment in a Qualified Education Program
As the name suggests, student loans are explicitly for students. Typically, lenders require that borrowers are enrolled at least half-time in an eligible 4-year or 2-year program or a trade school. In some instances, a lender may not approve loans for community college or non-4-year programs, so it’s best to contact a lender directly to determine if your academic plans meet their eligibility requirements.

It’s also important to note that you must intend to use the funds for academic expenses. To ensure this, some lenders will disburse the funds directly to the school.

Other General Requirements
In addition to the requirements above, private student loan lenders frequently limit eligibility to applicant’s who are 18 years or older and have a high school diploma or GED. Lenders also typically have citizenship rules that require a borrower be a U.S. citizen, though there are some lenders specialize in student loans for non-citizens.

A Cosigner May Be Required

Though not an outright requirement, you may need to add a co-signer to your application if you don’t meet the lender’s credit score or income requirements. There are several pros and cons to cosigning a student loan. A qualified co-signer can be the difference between approval and denial; they may also potentially help you secure better rates.

If you do need a co-signer, they must meet the lender’s eligibility requirements, including credit score and income requirements. In short, a co-signer would need to have high income and a great credit score in order to help significantly.

If your co-signer is lacking in either category, then they may not add the needed security to an application compared to applying for student loans without a cosigner. Furthermore, keep in mind that your co-signer’s credit will also be on the hook for your debt, which he or she should be aware of.

When Should You Consider a Private Loan Over a Federal Loan?

If you’re a new student, don’t have good credit, or have low income, then a federal loan may be your best option. For many borrowers, federal student loans have lower guaranteed rates and offer more protections and benefits, like public service loan forgiveness or income-driven repayment plans. They do not require applicants to have great credit or established income as opposed to private loans.

However, if you or a willing co-signer have good/excellent credit, then you may find that a private student loan is worth considering. Lenders may offer creditworthy borrowers lower rates than federal loans. Just keep in mind that you may need to pay private loans back while in school, and you won’t be able to take advantage of federal loan benefits such as forgiveness.

If you need to finance all or part of your education, it’s important to understand the primary differences between federal and private student loans and their respective requirements. Doing so can help you identify the best option for your current needs and save you money in the long run.

 

Andrew is a Content Associate for LendEDU – a website that helps consumers, college grads, small business owners, and more with their finances. When he’s not working, you can find Andrew hiking or hanging with his cats Colby & Tobi.

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