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 U-fi 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 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.
Partial Repayment Plan
With a partial repayment plan, your initial payment amount will be set for a lower payment amount for a period of time, and then it will revert to standard repayment for the remainder of the loan. The total cost of a partial repayment plan will also be higher than with a standard repayment plan.
Deferred Repayment Plan
Deferred repayment is when you can hold off on making payments up until six months after you leave school. Interest accrues during this period and is then added to the principal balance of your loan before you enter the repayment period. For this reason, deferred repayment is the most costly option.
Graduated Repayment Plan
While this option isn’t very common for private loans, graduated repayment starts with lower monthly payments that increase over time on a set schedule. With graduated repayment, you pay more than with standard repayment, because interest accrues on a higher principal balance over a longer term. (U-fi doesn’t offer this type of loan.)
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 LIBOR, 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, unless borrower incentives are applied or removed. 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.
Hybrid Interest Rates
Hybrid rate loans are a less popular option. Hybrid loans give you a fixed interest rate for a period of time. After the fixed period is over, the rate switches to a variable rate for the remainder of the loan.
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, but some allow terms as long as 20 years.
U-fi 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. U-fi offers borrower benefits like a discounted interest rate for auto-debit payments and the option to release your cosigner after making 24 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, while your college costs are taken care of.
You can focus on late-night studying and let U-fi help you go further with smarter student loan solutions and better borrower benefits. Get started today.