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Five Important Questions Graduate Students Should Consider Before Taking Out Private Student Loans
A Franklin University report reveals that the average cost of a Master’s degree is between $30,000 and $100,000. Those numbers can be daunting to graduate students looking to continue their education. Many students find themselves in need of a private loan to cover the costs.
Do I Need a Private Student Loan?
If you have tried to cover your expenses with federal loans, scholarships, or grants
a private student loan may be the best way to cover the gaps other sources will not cover. Unlike federal loans, eligibility is based on your credit score.
Unlike federal loans, there is no deadline for application. A private loan can be taken out after the news comes back from other sources. Be aware that the application process may require a cosigner, depending upon your credit profile.
Am I Eligible?
Private student loans are issued by individual banks, credit unions, or other lending institutions. Your eligibility for a private loan is based on your credit score and credit history. Your debt-to-income ratio will also be considered.
If a low credit score or no credit history prevents you from gaining approval for the loan, you may need to ask a trusted friend or relative to cosign a loan with you. If you do use a cosigner, the terms of the loan will depend on the credit profile of the cosigner.
How Much Should I Borrow?
The loan amount will depend upon your need. Each financial institution will vary, but you may find yourself faced with one of three possible limits to the loan amount.
If the bank imposes an annual loan limit, you will be subject to a set dollar amount you may borrow per academic year.
If the lender uses an aggregate loan limit caps the number of loans you can combine. This is important to understand because you may take out multiple loans. Loan limits for undergraduate students are usually between $75,000 to $150,000. Loan limits for graduate students are usually the same or a little higher, but both private and federal loans are considered in the aggregate loan limit.
Finally, some lenders limit the amount you can borrow to the cost of attendance. The cost-of-attendance limit allows you to borrow the total cost less any financial aid you have received.
What Are the Repayment Terms?
Like any loan, the terms of repayment will depend upon the lender. The better your credit profile looks to the lending institution the better your credit score will be. If you are required to use a cosigner for the loan, their credit will be considered in the repayment terms.
Should I Take Out a Private Student Loan for Graduate School?
Before you take out a private loan for your advanced degree, consider the pros and cons. On the plus side, a private loan can pay for your tuition and your living expenses while you are in school. A private loan is not dependent upon your financial need.
If you default on the loans you take out, you can ruin your credit. You may end up in court. However, each state limits the number of time lenders can come after you for loan repayment. The statute of limitations varies from three to 10 years. Federal loans are not limited to a length of time.
On the other hand, private loans offer fewer avenues for repayment. Federal loans offer more flexible repayment terms. Federal loans have terms that are set by the government. Private loan terms can vary per lender.
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