Private student loan myths busted: What to know now

Summer's wrapping up and that means school is just around the corner. For those entering (or returning to) college, it also means rounding up the funds to pay for your schooling or — for many — securing some sort of financing instead.

Filling out your FAFSA form is the first step in this process, as it allows you to apply for federal loans, grants, and other forms of aid. Once you've exhausted those options, though, private student loans are next. 

These are offered by private lenders and work a little differently than federal ones. As such, they may not be as widely understood. Are you considering private loans to fund your return to school this year? Then it helps to understand some common private student loan misconceptions.

Start by exploring your private student loan options here now to learn more.

Private student loan myths to know

Here are three important myths to know about private student loans - and the truth behind them.

Most students can't qualify for a private student loan

While it's true that private student loans have more stringent qualifying requirements than federal ones, they're not impossible to get by any means. To start, you'll need a good credit score and a low debt-to-income ratio — meaning your debt payments don't take up too much of your monthly income. 

"Good credit is required for a private student loan, though the definition of 'good' does vary," says Jack Wang, a wealth and college aid advisor at Innovative Advisory Group. "And it's not just about credit score. The key factor that is often forgotten is debt-to-income ratio."

If your credit score is low, you have no credit history at all, or your debt-to-income ratio is high, bringing in a co-signer may be able to help you qualify. Co-signers are usually parents, grandparents or other family members, and they agree to share in the legal responsibilities of the loan with you. That means if you fail to make your payments, they'll step in and make them for you. 

Just make sure you choose a co-signer with a high credit score. As Cindy Chanin, founder and director of Rainbow EDU Consulting & Tutoring explains, "If the co-signer has a very strong credit rating, the loan terms may be even more favorable than if the student had gotten the loan from the government."

Explore your private student loan options and qualifications here now.

Private student loans are more expensive than federal student loans

As Chanin noted, there are times when private student loans offer better terms than federal ones. It all comes down to your (or your co-signer's) credit score, as well as other important factors like your lender, for instance.

"One misconception is that private student loans necessarily carry very high rates," Chanin says. "That is not true. While some do, not all do. Rates vary based on the market conditions, the lender, and the borrower's, and especially the co-signer's credit-worthiness."

You can also save money on private student loans by taking advantage of the low introductory rates that typically come with variable-rate options.

"Students who take advantage of the initially low variable rates of private loans by quickly paying off their loans will likely pay less over the lifetime of a private loan than a public loan," Chanin says. 

Private student loans have no hardship options

With federal student loans, repayment plans and hardship options abound. If you can't make your payments, you can request deference or forbearance, or you may be able to get on an income-based repayment plan, which adjusts your payment based on your income. 

Private student loans don't have all of these, but they do — at least with many lenders — come with some flexibility should you fall on hard times.

"Private loans, contrary to popular belief, may offer some hardship options, though not as many as public loans," Chanin says. Some even offer payment deferment while you're still in school, she says. 

To make sure you have options should a financial hardship occurs, make sure to ask about forbearance and other protections when shopping around for your loan. 

"The amount of time allowed in forbearance can vary between 12 and 36 months," Wang says. "This is not something that many families even know to ask about and lenders don't often publicize."

Learn more about your private student loan options here today.

Federal vs. private student loans

Federal student loans are often the best and most affordable choice for paying for college, but if you've exhausted your federal aid or need additional funds, private student loans can be a viable option. 

Just make sure you shop around for your loan, get your credit in shape, ask about potential hardship solutions and choose a strong co-signer. Taking these steps will help you get the best possible loan for your needs both now and in the future. Get started here now!