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 Private Education Loans

Private student loans are offered through a variety of banks and other lenders. Students must apply for these loans separately from their financial aid application. The best rates on private loans generally are offered to borrowers who have good credit and/or who have a cosigner with good credit. When shopping for a private loan, it is important to look for a loan you can live with in both the short term and the long term. You may be repaying it for several years after graduation.

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ABOUT PRIVATE EDUCATION LOANS

Private education loans are offered by many banks and loan companies. Many lenders will lend up to the amount of the student’s cost of attendance minus any financial aid he or she has received. Often there is a yearly and/or cumulative cap on the amount the student may borrow; sometimes this cap is set by the student’s school.

 

BORROWER REQUIREMENTS

The majority of lenders require a minimum of half-time enrollment. OFA checks enrollment status at the point of disbursement, not when the loan is certified. Many private education lenders also require student borrowers to have a cosigner for their loan.

 

ADVANTAGES OF HAVING A COSIGNER

In addition to increasing your chances of getting approved for the loan, having another person cosign for your loan sometimes helps you get a lower interest rate and may reduce the time it takes to get the loan approved.

Your cosigner does not have to be a relative, but he or she should be someone who has a steady income and a good credit history. Some lenders will release the cosigner from the loan after a period of time if the student borrower has met certain requirements such as making payments on time.

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PRIVATE LOAN ELIGIBILITY, LOAN TERMS, AND REQUIREMENTS

Eligibility Criteria Loan Terms Additional Information/Requirements

• Non-need-based

• Student must be enrolled at least half-time in degree program

• Borrower must be a U.S. citizen or eligible noncitizen

• Borrow may be required to have a cosigner

• Fees range from 0% to 12%, depending on borrower's credit. Some have origination fee.

• Loan amounts often are cost of attendance minus financial aid offered. Sometimes set by school. Often include a yearly and/or cumulative cap (can be as high as $250,000 for undergraduates).

• Interest rates generally PRIME -1% to +7.75% or LIBOR +1% to +8%

• Repayment term ranges from 0 to 25 years, often depending on amount of loan

• Interest rates, fees, and loan limits depend on credit history of borrow/cosigner, loan options, and repayment schedule. Having a cosigner may reduce interest rate and loan fees

• Students do not need to submit a FAFSA if they are not applying for any other aid.

• The federal Truth in Lending Act requires students to submit a Private Education Loan Self-Certification Form to their lender. Click here for details.

 

LENDER REQUIREMENTS

New provisions in the Truth in Lending Act, implemented in February 2010, have resulted in a number of changes in the process for applying for and receiving private education loans, including long-term U-loans and Health Professions Loans. Lenders who provide these loans must comply with the following requirements:

  • Lenders must provide three separate loan disclosures to borrowers--one at the point of application, one when the loan is approved, and one before the loan is disbursed.
  • A waiting period of three to seven business days is required between the time the borrower receives the final loan disclosure and the time that the loan is disbursed.
  • Students must also sign a self-certification form and submit it to the lender before the loan can be disbursed.

Your lender should provide you with all of the information you need to know about these requirements, but if you have questions, feel free to contact our office.

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THE SELF-CERTIFICATION PROCESS

You must submit a completed Private Education Loan Applicant Self-Certification form to your lender. Your loan cannot be disbursed until your lender receives it.

Sample Financial Aid Award Notice

 Your lender should provide you with a copy of the required Private Education Loan Applicant Self-Certification Form.  Complete the form and return it to your lender as soon as possible. If you do not receive the form from your lender, you may download the form here. Contact your lender for your application ID or other identifier that will help to match the form with your application. This form is required by provisions in the federal Truth in Lending Act.

 To complete the form, you will need to know your Cost of Attendance and your total financial aid package (estimated financial assistance).  If you receive financial aid, this information can be found on your financial aid Award Notice in Wolverine Access.  (For instructions on how to view your Award Notice, see the Award Notification page.)

Cost of Attendance can be found at the top of your Award Notice and your total financial aid package (estimated financial assistance) in the sections at the bottom.  To get your total financial aid figure, you must tally the aid awarded in each section (Gift Aid, Work-Study, Loans and Other). 

If you are not receiving financial aid, find your cost of attendance using our Cost of Attendance page.

HOW TO FIND AND APPLY FOR A PRIVATE LOAN 

If you are considering borrowing through a private lender, we encourage you to:

  • Be sure you have exhausted all other possible sources of financial aid, including federal loans, first.
  • Look for ways to reduce your expenses before you decide how much to borrow.
  • Borrow only what you absolutely need.
  • Ask questions and compare the rates and terms offered by different lenders. (See the Project on Student Debt's list of questions to ask about private loans and student loan shopping tips.)

If you decide to pursue a private loan, you must apply directly through the lender. You are free to choose any lender you wish and the university will certify any application.

The following list represents lenders who provided 10 or more loans to University of Michigan students according to a recent analysis of loans for the 2012-2013 year. This list is reviewed periodically and can be changed at any time. Please note that the university does not have relationships or agreements with any of the lenders listed here.

*Wells Fargo and Citizens Bank do not require international students to have a Social Security number prior to applying for a private education loan

The university adheres to a Code of Conduct for Student Loans that prohibits inducements by private lenders. To compare the terms of loans you are considering (and to compare private loans with federal PLUS Loans, see the College Board's Loan Comparison Calculator.

A Word of Caution to Private Loan Borrowers

U-M students should avoid lenders that do not require U-M certification of their loan application and, in general, should be suspicious of unsolicited loan offers. The Michigan Student Financial Aid Association cautions students that "loan debt can accumulate quickly and result in a lifetime burden of high payments and credit denials for automobile purchases, credit cards, and home mortgages. Private loans also can reduce eligibility for more desirable federal, state and college aid programs. To avoid these problems, read and understand the terms and conditions of all loans."

 

TYPICAL LOAN PAYMENTS

Typical loan payments are shown in the example below:

Interest Rate Undergraduate Students Graduate Students
APR Monthly Payment APR Monthly Payment
Prime +0.00% 7.98% $64.48 8.10% $80.82
Prime -0.50% 7.51% $61.35 7.62% $77.13

Undergraduate students:  This APR example is based on borrowing a $6,000 undergraduate loan with a 38-month deferral period followed by a 240-month repayment period.  The Prime Rate is assumed to be constant at 8.25%

Graduate students:  This APR example is based on borrowing an $8,000 graduate loan with a 27-month deferral period followed by a 240-month repayment period.  The Prime Rate is assumed to be constant at 8.25%.

Interest rates indexed to the Prime Rate as published in The Wall Street Journal will vary.  As of  Sept. 29, 2014, the published Prime Rate was 3.25%.  The APR will increase if the Prime Rate increases and would result in a higher monthly payments, an increase in the number of scheduled payments, or both.

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