Achieving your educational goals is a critical aspect of setting yourself up for success. You want to be prepared for the future and find the perfect career for you, but first, you have to figure out how to pay for it.
If you need money to help cover educational costs, and have exhausted your federal loan options, consider applying for private student loans. There are many things to learn about when exploring which private student loan options are the best fit for you, so Nelnet Bank is here to help you make sense of all the different options.
Private Student Loan Repayment Plans
First off, get familiarized with the different repayment plans offered by lenders and how each of them can fit your lifestyle.
Standard repayment is the most common plan for private student loans, and it gives you a set amount to pay each month. In standard repayment, you pay off your loan in equal installments over the term of the loan.
With this plan, you make interest-only payments while in school and for the six month grace period after, and then you enter standard repayment. With interest-only plans, you will pay more in interest than with a standard repayment plan, and your monthly payments will be higher when your loan enters standard repayment.
Fixed Pay Plan
With this plan, you’ll make a small monthly payment (e.g., $25) while in school and during a six-month grace period following separation from school. Interest will be charged and any unpaid accrued interest will be capitalized (added to the principal loan balance) on the loan once the loan enters repayment. If the required payments of $25/month are not made, the loan can become delinquent or default. Since interest capitalizes, you may pay more overall on your loan.
Deferred Repayment Plan
Deferred repayment is when you can hold off on making payments up until six months after you leave school. Interest capitalizes during this period – it accrues and is then added to the principal balance of your loan before you enter the repayment period. For this reason, deferred repayment may cost more in the long run.
Choosing the best repayment plan option depends on your circumstances while you’re in school and when you graduate. In general, the more you can pay off sooner, the less you’ll pay overall.
Interest Rate Types
Another important factor in understanding your student loan options is the different types of interest rates available to you:
Variable Interest Rates
This option has an interest rate that can change over time as the rate index, such as the Prime Rate or SOFR, goes up or down. Variable rates usually come with lower starting interest rates than fixed rates; however, this is because the borrower is taking on the added risk that rates may rise in the future. Most variable rate loans have a cap that limits how high the rate can rise.
Fixed Interest Rates
Once your fixed interest rate is set, the interest rate won’t change for the entire repayment period. Fixed rate loans typically have higher starting rates than variable rate loans, because the lender takes on the risk of interest rates fluctuating over time.
Besides your repayment plan and your interest rate, your repayment term will also play a large part in your monthly payment and the amount you’ll pay in the long run. Your repayment term determines the length of your repayment and the monthly interest rate that you will be charged over that term. Typically, the shorter the repayment term, the lower the interest rate because lenders take on less risk if you repay your private student loans quickly. Most lenders offer repayment terms between 5 and 15 years.
Nelnet Bank offers more tips on interest rate types and repayment terms that you may find useful.
Other Options to Consider
There are other factors you should consider before deciding which type of private student loan is the best fit. Private loan lenders may provide competitive borrower benefits and cosigner options to help make repayment easier for you. Nelnet Bank offers borrower benefits like a discounted interest rate for auto-debit payments. Nelnet Bank also provides the option for eligible borrowers to release their cosigner after making 24 consecutive, on-time payments.
Being informed about your options is the first step in achieving your educational goals. Finding the right type of private student loan means you can focus on studying.
Nelnet Bank does not provide legal, investment, tax, or financial advice. This page and the information contained herein is for informational purposes only. This content is not meant to address the circumstances of any particular individual. Nothing contained in this article constitutes a recommendation or endorsement by Nelnet Bank. For specific advice about your unique circumstances, consult with a qualified professional.