Over one million students are using private student loans each year, attributed to the high cost of college education. A recent government analysis by Senator Tom Harkin, showed that about one-fourth of all federal student financial aid is being awarded to students who attend private, for-profit colleges, accounting for 12 percent of the national college population. <a target="" rel=""></a> What are private student loans? Scholarships, grants, and other federal loans are best known to help students afford the cost of attendance, but in most cases, these funds aren't enough. So, the students opt for more expensive options such as private student loans, issued by banks, private lenders and credit unions to help bridge the gap. Private student loans partly cover the gap between what you need for your school expenses, but the option has enormous drawbacks. One of the main disadvantages linked to private student loans is that they are credit-based loans with variable interest rates that are 3-5 times higher than the fixed interest rates offered by federal financial aids. Additionally, lenders don’t offer flexible repayment options and students' hardship protection that’s provided by the federal education loans. As seen above the loans fill financing gaps in your student aid package, but come at a high price if you aren’t keen. To make sure you get the best deal, a side-by-side rate comparison is required. A 10-minute loan comparison can save you a lifetime of credit financing. Current comparison situation Student loan comparison enables you to view and compare multiple opportunities in a quest to find the package that best fits your needs and plan. This is the key to finding the best private student loan option, but before you start comparing, there are a few aspects you need to keep in mind. Most private student loan comparison sites, tools, and directories of education lenders accept paid placement for their listings. It means the loans listed may be ranked according to criteria that maximize listers profit and not necessarily criteria that minimizes cost to the student. Also, the lister may list loans by the best-advertised rates, as opposed to the actual rates. Why is it so important to compare student loan options? In most cases, one of the top five best private student loans listed could be a good fit. However, the opportunity may not fit your needs. For instance, you may find a national lender, or even a local one is the best. Why? You need to compare interest rates and loan fees, repayment options, student benefits, and loan discounts and most of all customer service. Some lenders will let you apply for a pre-approval that tells you if you can get approved and shows the loan terms that won’t hurt your credit.&nbsp; The lenders determine the interest rates and factors in repayment term. The higher the interest rate, the more you end up paying in the long run. Private student loan interest rates can either be fixed or variable. The best private student loan is one with a low interest rate, and an interest cap to control the cost over the term in case of variable interest rates that change over time. Avoid loans that require you to make monthly payment while in school. Look for one that defers your payment until after graduation. Also, if you choose a loan with a longer repayment term, you will benefit from lower monthly payment, and end up paying more in total over time. Be sure to choose an option that offers flexibility and a reasonable total cost depending on your situation. Pick a private lender that allows both fixed and variable interest rates. It's hard to switch your interest rates after taking the loan, thus, be careful when considering your options. Beware of the rates Private student rates factor in loan term, loan limit, and credit history. Lenders also use market and proprietary risk assessments, thus offering different rates to otherwise similar loan options.&nbsp; Note the lenders with the lowest listed interest rates aren’t necessarily the ones that provides the best rates. Lenders calculate individual student rates, and the advertised rate is only possible under certain conditions. Such conditions include qualifying for a discount if you enroll in auto debit. Lenders use different criteria and formula to determine your eligibility, which is why it’s imperative to compare multiple loan options before committing to one. For instance, you may get approved for one with the lowest rate and another lender’s mid-tier rate. Undergraduate students don’t have sufficient credit history making it difficult to get approved for private student loans on their own. Eligibility and loan rate factor in creditworthiness, monthly income if any, and expenses. Lack of good solvency is solved by a cosigner to qualify for a private student loan. A good cosigner must have an excellent creditworthiness and will be responsible for repaying the loan, thus impacting on the loan interest rate. As noted above, most private student loan comparison sites and listers provide teaser rates and rate ranges. In most cases, the sites are paid to advertise various student loans. They present the student with the best-advertised rates, teaser rates, or even average interest rates, making it hard for a student to make the right decision. It’s important to note that although they are appealing, teaser rates are not permanent and rate ranges are may be quite wide and not in the student’s favor. The best private loan comparison site should provide the student with actual interest rates and fees. It ensures the student gets a comparison based on relevant information. Such comparison sites and tools are often designed to hide potential and actual biases and lack clear disclosure.&nbsp; Private student loan comparison sites need to satisfy particular standards such as presenting the student with actual interest rates and fees, including a critical mass of lenders, that make sure the student can obtain a rate that is close to the best rate depending on the situation. The tool/site needs to minimize the impact on the student’s credit score, as each search for a loan results in up to 5 points hit to the student’s credit score. More inquiries are likely to shift the student from one credit tier to the next increasing their costs.

Private Student Loan Comparison: Why 10 Minutes Could Save $10,000

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