Needing to obtain a private student loan is a necessity for many college students. All experts advise that student max out all Federal loan opportunities before turning to the private sector.

When applying for a private student loan, students should do a lot of research to obtain the most favorable terms. The private student loan market is constantly changing and becoming more confusing, as less lenders offer private student loans.

The Lowest Rate May Not Be the Best Rate

Susan Tompor, writing for USA Today, points out that students need to be especially careful of rock bottom loans.

Be extra careful about jumping at the first student loan rate you spot online at 2.25% or      3.25%. Many of the bargain-basement rates on private student loans are variable rates. So, if interest rates climb in the next few years, as they likely will, you'd be stuck repaying that loan after graduation at a much higher rate

Mark Kantrowitz of Edvisors notes that a 5% rate, if the student is even able to get it, could easily hits 9% over the 10 to 15 year term.

Graduate With Private Student Loan

Graduate With Private Student Loan

Qualifying for a Low Interest Rate is Difficult

The low interest rates that will show up during a search are usually available to students with outstanding credit histories.  The Smart Option variable APR private student loan for undergraduates from Sallie Mae starts at a modest 2.25% but depending on credit scores and other factors could hit 10.125%.  The fixed rate equivalents for that product range from 5.75% to 12.875%.  All experts agree that variable rates will go up. Locking in a fixed rate may equal long term savings.

Understanding Fees and Rate Structures

FinAid.org is an excellent, comprehensive and straight forward site that can help students navigate the complex world of college finance. Finaid suggests that students look for variable APR loans that are calculated at LIBOR plus 2%.

The site also points out the loans with no origination fees may not always be the best. To help determine which is better, FinAid points out that a 3-4% origination fee is equal to about a 1% increase in the APR.

A list of private student loan rates and information is available here.

Some Private Student Loan Rate Examples

The following table shows some of the ranges of student loans for the 2013-2014 school year

Loan Option

Interest Rate

Rate Calculation

Annual Percentage Rate (APR)

Alliant Credit Union and Health Services Credit Union Private Student Loan

Option 1

5.00%

3-month Libor + 4.00% (min. 5.00%)

See APR and terms

Option 2

5.25%

3-month Libor + 4.25% (min. 5.25%)

Option 3

7.00%

3-month Libor + 6.00% (min. 7.00%)

American State Bank Private Student Loan Program

Option 1

5.75%

Prime + 2.50%

See APR and terms

Option 2

8.50%

Prime + 5.25%

Ascentra Credit Union Private Student Loan Program

Option 1

5.25%

3-month Libor + 4.25% ( min. 5.25%)

See APR and terms

Option 2

5.50%

3-month Libor + 4.50% ( min. 5.50%)

Option 3

6.50%

3-month Libor + 5.50% ( min. 6.50%)

Capitol View Credit Union's Private Student Loan Program

Option 1

4.50%

Prime + 1.00% (min. 4.50%)

See APR and terms

Option 2

5.00%

Prime + 1.50% (min. 5.00%)

Option 3

7.00%

Prime + 3.50% (min. 7.00%)

Dupaco's Extra Credit Student Loan Program

Option 1

5.50%

3-month Libor + 4.50% (min. 5.50%)

See APR and terms

Option 2

6.50%

3-month Libor + 5.50% (min. 6.50%)

The Family Credit Union Private Student Loan Program

Cosigner Loan

5.28%

3-month Libor + 5.00%

See APR and terms

Premier Credit Union Private Student Loan

Cosigner Loan

5.28%

3-month Libor + 5.00%

See APR and terms

Veridian Private Student Loan

Option 1

5.25%

Prime + 1.75% (min. 5.25%)

See APR and terms

Option 2

5.75%

Prime + 2.25% (min. 5.75%)

 

Source: http://www.studentloan.org/