Advertiser Disclosure

College Students and Recent Grads, Pay Down My Debt

How To Know If Your Student Loans Are Private or Federal

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

How To Tell If Your Student Loans Are Private or Federal

When you borrowed money to pay for college, you may not have paid much attention to the difference between federal and private student loans. You might not know who your student loan servicer is, or if you do, you may wonder for example whether that loan listed under Nelnet is federal or private.

In fact, it’s completely reasonable to ask why the difference between private and federal student loans matters in the first place.

There are a few ways to see if your student loans are private or federal — here’s how, along with what makes each different, and why knowing which type of loan you have is important.

What makes federal and private student loans different?

Federal student loans are offered through the Department of Education. Typically, these loans are easy to qualify for. For many federal student loans, your credit isn’t even checked.

There are four different federal student loan programs currently available:

  • Direct subsidized loans: These loans are awarded based on your financial need. When you apply for federal financial aid, your eligibility for subsidized loans is also considered. “Subsidized” here means that interest isn’t charged until after you graduate or drop below half time.
  • Directed unsubsidized loans: Anyone can receive an unsubsidized loan — they aren’t based on need. However, unsubsidized loans will put you on the hook for interest charges that accrue while you’re in school.
  • Direct PLUS loans: These loans are specifically for graduate students or for parents of undergraduate students taking out loans on behalf of their child. These loans aren’t based on financial need, and a credit check is required.
  • Direct consolidation loans: This type of loan allows you to combine all your federal student loans into one, giving you one manageable payment each month rather than many. Your new interest rate is the weighted average of all your loans, rounded up to the nearest one-eighth of a percent.

Private student loans, on the other hand, are offered by private lenders and have different repayment requirements compared with federal student loans. For example, private student loans can offer fixed or variable interest rates, while federal student loans only offer fixed rates.

Because the features of private loans vary from lender to lender, eligibility will depend on the bank, credit union or online financial institution that you borrow from.

Most borrowers usually favor federal student loans, given the flexible repayment options and debt-forgiveness programs they come with. But since federal loans also have borrowing limits, students may need to turn to private loans to help fund any remaining costs, and in a few cases, a private loan might have a better interest rate than their federal equivalent.

How to determine if your loans are federal

The first thing you should do to see if you have federal loans is log on to the National Student Loan Data System. The only loans listed here are federal.

If you’ve never used the NSLDS before, you’ll want to click the “Financial Aid Review” button on the homepage, hit “Accept,” and then enter your credentials.

If you have a Federal Student Aid (FSA) ID, you can enter it here. If not, there’s an option to create one. In May 2015, the government redesigned its student loan system, and you can now use your FSA ID to log on to multiple government sites. But if you haven’t visited in a while, you might need to create one.

In the event you forgot your credentials, you can click the “Forgot my username/password” button and have the information emailed to you or answer a challenge question. You’ll just be required to enter your Social Security number, last name and date of birth.

Once you log on, you’ll see a list of all the student loans that were disbursed to you. This page will also show you what your original loan amount was, and how much you currently owe.

Click on the numbered box to the left of your loan to determine your loan servicer. This will display all the information about that particular loan. Your loan servicer will be listed under the “Servicer/Lender/Guaranty Agency/ED Servicer Information” section. The name, address, phone number and website should all be displayed.

Additionally, this page will also inform you of your loan terms. Along with your original loan balance and current outstanding balance, it will tell you what the interest rate is and the current status of the loan.

How to determine if your student loan is private

As discussed, private student loans are loans not made by the government — banking institutions, such as Sallie Mae, Wells Fargo, Citizens Bank and others offer them. As a result, there are more lenders to look out for when it comes to private loans.

Unfortunately, there’s no central reporting system for private loans like there is for federal loans, which makes them slightly more tricky to track down.

Your first stop should still be the NSLDS to at least see if you have any federal loans. In 2015, just 5% of undergraduate borrowers had private student loans, so your student loans are more likely to be federal than private.

But in order to make sure you have no outstanding private student debt, you’ll want to take a look at your credit report. You can view your reports from the three main credit bureaus for free by visiting AnnualCreditReport.com.

Some lenders may not look familiar to you. Searching the lender’s name online may help you find out who the parent company is. Don’t hesitate to call the numbers available on your credit report if you’re still unsure.

If you graduated a while ago, some older loans may look unfamiliar. You might see “federal direct loan,” “federal Perkins,” or “Stafford” on your report — these are federal loans, so ensure they match up with what’s in your NSLDS file.

You might also be able to call your school’s financial aid office to see if they have records of your loans.

What should you do once you find out?

Knowing whether your student loans are private or federal can be important as you repay you college debt.

For example, knowing the difference is crucial if you ever decide to refinance or consolidate your student loans. You can only combine your debt under a direct consolidation loan if you have federal loans. Likewise, refinancing through a private lender will cause you to lose access to federal repayment and forgiveness programs, while private loans would be unaffected.

So, by knowing which type of student loans you have, you’ll get a better idea of what options you have to knock them off.

Customize Student Loan Offers with Magnifymoney tools

Dori Zinn contributed to this report.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Erin Millard
Erin Millard |

Erin Millard is a writer at MagnifyMoney. You can email Erin at [email protected]

TAGS: , ,

Advertiser Disclosure

College Students and Recent Grads

5 Reasons You Might Be Denied for a Private Student Loan

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

college-grad

When you’re applying for money to pay for college, experts agree that federal loans are usually the best way to go. They’re less expensive (especially for undergraduates) and more flexible than private student loans.

But if you need more money than you’re being offered in federal aid, a private student loan from a bank or other lender may be your best option to fill the gap. In the most recent numbers on private student loan borrowers, 43% turned to private lenders because they could not borrow any more in federal Stafford loans, according to the Institute for College Access & Success (TICAS).

But if you’re thinking of applying for a private loan, you should know that getting approved isn’t a slam-dunk.

“Lenders are focusing their money on the borrower who is least likely to default and most likely to be profitable,” said Mark Kantrowitz, financial aid expert and publisher of Savingforcollege.com. As a result, applicants who seem even a little risky might find themselves rejected for a private student loan.

Here are five reasons you might be denied for a private student loan:

1. Your credit isn’t good enough

Many undergraduate students — and some graduate students — don’t have a robust enough credit history to qualify for a private student loan. Or, if they do, their score might be too low.

Can you get a private student loan with bad credit? Possibly, but you might need a cosigner on a private loan application to get it approved. “About 90% of our private education loans are co-signed,” said Rick Castellano, a spokesperson for Sallie Mae.

Note, however, that using a cosigner can also cause problems of its own.

2. You’ve borrowed a lot recently

The Department of Education, guaranty agencies and other federal student lenders report your loans to the credit bureaus, as do most private lenders. As a result, future lenders are able to easily see how much money you’re borrowing and what your total debt load looks like.

Your debt-to-income ratio ideally needs to be 40% or less, though standards range from lender to lender. If you have a lot of debt and not much income, you’re a riskier bet, leading private lenders to reject your loan request.

3. You’re going into the ‘wrong’ field

“If you’re applying for private aid for a degree in a field that pays well, like a medical degree or in the sciences, and you’ve got a reasonably good credit background, you’re getting approved,” Kantrowitz said. On the other hand, if you’re pursuing a degree in a field that traditionally pays poorly — thus making it harder for you to repay a loan later — it’s a tougher call.

Keep in mind that your future earnings will also play into your likelihood of getting approved for student loan refinancing after you graduate. We definitely aren’t telling you to avoid pursuing your dreams, just to be careful about your debt burden if you’re entering a historically low-paying field.

4. You’re asking for too much

It could be that the private lender thinks your loan request is too high. “To ensure applicants borrow only what they need to cover their school’s cost of attendance, we actively engage with schools and require school certification before we disburse a private education loan,” Castellano said.

In this case, you might not get rejected, but the school might certify a lesser amount.

Also be aware that you can sometimes get approved for more than you actually need. If that’s the case, you probably shouldn’t use those extra student loan funds to cover the cost of decorating your dorm, grabbing coffee after class or bar hopping. The cost of using student loans to cover living expenses can take a heavy toll down the road.

5. You’re a freshman

If you’re only a year or two away from graduating, you’re more likely to get approved than if you still have four years of undergraduate schooling ahead of you. This is because, as Kantrowitz explained, “there’s less risk of you dropping out.”

Graduate students may also have an easier time getting a private student loan because they’re more of a known quantity — they even started to pay down debt and established themselves as less of a risk.

Why you might be denied for a private student loan (and what to do instead)

In all circumstances, experts feel you should weigh the costs and benefits of private loans carefully — and whether you need them at all. For one thing, 45% of private loan borrowers borrowed less than they could have in federal loans, according to TICAS. So make sure you’ve exhausted your federal loan opportunities before heading this way.

Private student loans can be harder to get than federal ones because they’re credit-dependent. Everything from existing debt and credit scores to how far you are into your education will play a role in whether or not your application is accepted.

But getting denied for a private student loan doesn’t mean that you’re out of luck when it comes to funding college. There are many other options, from racking up scholarships to finding a tuition-free school. You could even start with a low-cost or no-cost community college and then try to build your credit to qualify for a private student loan later on when you transfer to a four-year university.

Devon Delfino contributed to this report.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Kate Ashford
Kate Ashford |

Kate Ashford is a writer at MagnifyMoney. You can email Kate at [email protected]

TAGS: , ,

Advertiser Disclosure

College Students and Recent Grads

Step-by-Step Guide to Applying for Private Student Loans

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

istock

Once you’ve maxed out your eligibility for federal financial aid, you might turn to private student loans to cover the costs of college. But you’ll soon discover that applying for private student loans is a different process than applying for federal ones.

To access private loans, you’ll need to seek out a bank, credit union or another financial institution. Along with all the required paperwork, you might also need a cosigner to sign on to your application. Learning how to apply for private student loans before you act will help ensure there are no delays along the way.

Applying for private student loans in 7 steps

1. Determine how much money you need to borrow

Your first step to getting a private student loan involves figuring out how much money you need to borrow. Private loans can be used for any eligible educational expenses, including tuition, fees, textbooks, room and board and other living expenses.

Take a look at your school’s estimated cost of attendance, which you can typically find on its financial aid website or your financial aid letter. Take the amount listed and subtract any other aid you’ve already received, like federal student loans, grants or scholarships.

If you haven’t received aid yet, the FAFSA4Caster tool can help you estimate your award. After submitting the Free Application for Federal Student Aid (FAFSA), you’ll also see your Expected Family Contribution (EFC), or the amount your family is expected to pay out of pocket.

If you still have a gap in funding after aid has been applied, you might fill it with a private student loan. But be careful about borrowing too much — you don’t want to be stuck with a burdensome amount of debt after you graduate.

What’s more, you probably can’t borrow much beyond your school’s cost of attendance anyway, since your school will likely have to certify any amount you request from a private lender. Estimating your costs will give you a good sense of how much you’re eligible to take from a bank.

From there, you can look for ways to lower the amount you need to borrow in student loans, whether that involves applying for more scholarships or working a part-time job during college.

2. Research private lenders

Once you have a sense of how much you want to borrow in private student loans, it’s time to research your options. You have lots of choices when it comes to borrowing a private student loan.

To save you some time, we’ve vetted private student loan lenders to help you find some of the best ones. Here are a few of our top recommendations for lenders with excellent rates and terms.

Since each lender is different, it’s useful to compare your options to find one that’s best for you. Along with finding the lowest interest rate, you might also look for other perks, such as flexible repayment options or a reputation for good customer service.

3. Compare private student loan offers

Another advantage to several of the lenders mentioned above is their offer of an instant rate quote. After heading to their website, you can check the rates available to you with just a few pieces of basic information, such as your name, school, and the amount you wish to borrow.

At this point, you can immediately see some pre-qualification offers, along with the rates you might get if you apply. This instant rate quote makes it easy to compare offers from multiple lenders so you can find one with the best terms.

Plus, it won’t impact your credit at all, since it’s just a soft credit check. Remember, however, these are only pre-qualification offers — you’ll need to submit a full offer and consent to a hard credit check to see your final loan offer.

But these pre-qualification quotes do give you a good sense of what you could be eligible for, as well as help you narrow down your options for lenders. Note that not every lender offers an instant rate quote, and you probably shouldn’t neglect the ones that don’t.

If you belong to a bank or credit union, for instance, it could be worth speaking with them about a loan to see if you can get an even better deal. Still, taking advantage of instant rate quote or loan comparison marketplaces such as LendKey will help you get an initial sense of what’s available.

4. Find a cosigner if necessary

Unlike the federal government, private lenders have underwriting requirements for credit and income. You’ll need strong credit and a steady income to qualify for a loan, as this reassures the lender you’ll be able to pay back your debt.

Most undergraduates can’t qualify on their own, so they apply with a cosigner, such as a parent. However, know that your cosigner becomes just as responsible for the debt as you are — their credit is on the line in the event you can’t pay, so have a conversation with your cosigner before applying for private student loans to ensure you’re both on the same page about who’s paying back the debt.

Cosigning debt isn’t a decision that should be made lightly. It’s important to clarify expectations so no one’s finances (or relationships) get hurt.

5. Gather the required paperwork

Once you’ve done the preliminary research, the time has come to collect all the necessary documentation. If you’ve submitted the FAFSA, you might already have some of this information on hand.

Although requirements can vary, most private lenders ask for the following:

  • Social Security numbers for you and your cosigner (if any)
  • Personal data, such as your date of birth, home address and phone number
  • Annual income, with pay stubs or W-2s as supporting documentation
  • Employment information
  • A copy of the previous year’s tax returns
  • Monthly rent or mortgage payments
  • A list of assets and their values
  • Contact information for a personal reference
  • The Private Education Loan Applicant Self-Certification form, which you can obtain from you school’s financial aid office or the Department of Education

Each lender sets its own requirements, but the majority will want most of the documents on this list. Gathering them in advance will help your application go smoothly.

6. Submit your application for a private student loan

Once you’ve done your research, chosen a lender and gathered your information, the time has come to submit your private student loan application. Most lenders make it easy to apply for a private student loan online.

This process shouldn’t take long, especially once you have all the relevant documents at the ready. You’ll usually start by filling out your personal information, as well as the details for any cosigner. You’ll have to indicate where you’ll be attending school, as well as the loan amount you’re requesting, and likely upload verifying documents, such as pay stubs or tax returns.

Your final step will be acknowledging the lender’s terms and conditions before hitting submit. At this point, most lenders will reach out to your school to certify the amount you requested.

Assuming all goes well, the lender will likely send the funds to your financial aid office. After applying it to your tuition bill, your financial aid office will return any remaining funds to you.

You can use this money on living expenses, or you can return it to the bank so you don’t have to pay interest on it. In fact, you can always prepay your student loan ahead of schedule without penalty.

Note that some lenders will send the funds directly to you, rather than to your financial aid office. In this case, it’s your responsibility to get the loan money and pay your tuition bill.

While you can borrow a private student loan at any time throughout the school year, don’t leave your application until the last minute. The process can take some time, so you want to ensure the money arrives in time to pay your tuition bill before the deadline.

7. Read over the terms of your contract before signing

Once your application has been submitted and approved, make sure to read over your student loan contract before you sign it. Check to see exactly how much you’re borrowing, along with your repayment term, interest rate and monthly payment.

Find out if you need to make any payments while you’re still in school, or if you have a grace period that extends for a few months after you graduate. Use our student loan calculator so you have a clear understanding of the long-term costs of your loan.

Finally, find out if your lender offers any alternative repayment options in the event you lose your job or return to school in the future. For instance, some lenders will postpone payments temporarily if you run into financial hardship or go to graduate school.

Learn about your options beforehand so you don’t make any false assumptions about your private student loan options.

Applying for private student loans doesn’t have to be arduous

Applying for a private student loan might feel daunting when you’re heading to college the first time, but the process will seem easier after you’ve gone through it once. Learn how to get private student loans well before the school year starts, so you won’t be left scrambling when tuition is due.

And make sure you shop around with multiple lenders before choosing one to finance your education. By putting in your due diligence now, you can find a private student loan with the best rate and lowest costs of borrowing.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Rebecca Safier
Rebecca Safier |

Rebecca Safier is a writer at MagnifyMoney. You can email Rebecca here

TAGS: , ,