3 things private student loans have that federal loans don't
With a new college semester just weeks — if not days — away, many students find themselves in need of financial aid. While waiting until the last minute isn't generally great, students still have some great options for the fall semester. This can include federal student loans, grants and various scholarships. Private student loans can also be beneficial, particularly if those latter options can't fill the gap required to fully fund the upcoming school year.
To understand how private student loans can be helpful, however, borrowers should first understand how they're different from their federal counterparts. There are multiple things that private student loans have that federal loans do not. Below, we'll break down three of the most important differences borrowers should know.
Start by exploring your private student loan options here to see how much you could borrow.
3 things private student loans have that federal loans don't
Here are three things that most private student lenders offer that federal loans won't.
Higher borrowing limits
Perhaps the most popular reason for using private student loans is the higher borrowing limit they come with. Simply put, federal student loans may not always be able to fully fund your education. In cases like this, borrowers will be best served by supplementing that gap with a mix of private student loans, grants and other alternatives.
So how much can you borrow with a private student loan? That figure varies based on your credit profile and the lender in question, but it often ranges between $75,000 to $100,000. Compared to the typical $5,000 to $20,000 usually provided by federal loans, private ones can make a significant difference — especially as the price of higher education continues to rise.
Check your private student loan options here now to learn more.
Quicker approval times
Waiting until August to secure your funding for the fall semester isn't the best decision. Fortunately, you may be able to still get all of your financing in order relatively quickly. Federal student loans, which are applied for via the Free Application for Federal Student Aid (FAFSA), can be approved in three to five business days, assuming no hiccups.
But private student loans are generally quicker, with applicants known to receive confirmation in just a few minutes. This does depend on the lender in question and is not a set standard for all applicants and lenders. But, in general, private student loans have faster approval times than federal student loans, making them a great option for those who need to get approved for funding quickly.
Variable interest rates
One big way that private student loans and federal student loans are different? Their interest rates, and specifically how those rates are structured. Federal student loans have fixed interest rates while private student loans can have both fixed and variable ones.
While this may seem to be an advantage for federal student loans, it may not be as beneficial as it seems. Interest rates are at a 22-year high. That means borrowing is more expensive across the board. While private student loan rates may change, they may start at a lower rate than what can be obtained via the federal route.
Granted, by the nature of the variable rate, these can and likely will increase in the future, but that may be worth the gamble for a lower rate now. Plus, borrowers could always refinance their private student loans to a lower rate in the future.
Learn more about your private student loan options for fall 2023 here now!
The bottom line
Both private and federal student loans have their own pros and cons. Generally, a mix of both will be favorable for most borrowers. There are some important distinctions between the two that are worth noting, however. Specifically, private student loans tend to have higher borrowing limits and quicker approval times. They're also known for having both fixed and variable rates, giving borrowers a greater range of options to choose from in today's high interest rate climate.
