Private Student Loans

Private student loans are credit-based loans applied for through individual banks that help students “bridge the gap” between the financial aid they have been awarded and any additional amount they feel may be needed to help achieve their educational goals. Being approved for a Private Student Loan depends largely on a borrowers credit score. With the recent tightening credit markets, the largely held belief is that in general borrowers must have a minimum FICO score of “at least” 670, in addition to minimum income requirements for the borrower. While rates and repayment terms on Private Student Loans typically aren’t as solid as those offered on the various federal students loans, using Private Student Loans are often a wiser financial decision to “bridge the gap” than using credit cards or a home equity line of credit. However, it is ultimately the responsibility and choice of the borrower to make the best personal financial decision.

Private student loans may be an important source of funding for students who are in one of three situations, either 1) ineligible for federal student loans, 2) in need of loan funding beyond that which federal programs permit during the year, or 3) owe a balance to The University of Mississippi which occurred in a prior academic year (prior to July 1, 2008). In the case of the upcoming 2008-2009 academic year, a prior year balance would be any balance on a student’s bursar account that was incurred prior to July 1, 2008.

Beginning July 1, 2008, federal legislation forbids an institution from using financial aid funds from a current academic year to pay a prior year balance in excess of $200. If you fall into this category and are unable to pay the prior year balance out of pocket, then you will need to consider applying for a private student loan to cover the prior year balance.

Students and co-borrowers may borrow up to a student's total cost of attendance less other financial aid received such as grants, scholarships, and other federal student loans. The total cost of attendance is determined by the Office of Financial Aid based on an average cost for tuition, books, room and board, travel, and miscellaneous expenses for the academic year. It is important for both the student and potential co-borrower to fully understand how a Private Student Loan will impact them financially. Most financial experts advise that one should not incur debt that results in total monthly payments (debt-to-income ratio) exceeding 20% of your monthly gross income, excluding mortgage debt.

While it is not a requirement to apply with a creditworthy co-signor, doing so often increases both your chances of being approved for a Private Student Loan and potentially lowers front-end fees and interest rates. Most lenders require student borrowers themselves to have both a credit history and a minimum income requirement, so it is in your best interest to have a knowledgeable and willing co-signor assist you in applying for a Private Student Loan in most cases. Understanding that co-signors don’t want to feel financially responsible throughout the life of the loan in the event the actual borrower defaults, many lenders now offer “co-signor release” options after a certain number of on-time payments have been made, once the borrower passes a credit check at that time.

Interest rates on Private Student Loans are tied to either LIBOR or PRIME. The borrower will see when comparing loans on Ole Miss’ ELM Select Private Student Loan site that some of our lender partners use LIBOR while some use PRIME. However, it is vital that the borrower compares the minimum and maximum potential interest rates for each loan when considering the various loan products. It is important to note that Private Student Loans remain variable rate loans at disbursement and throughout repayment, regardless of being tied to LIBOR or PRIME. However, some lenders will offer Private Student Loan Consolidation with a fixed interest rate option (as can be seen on ELM Select).

1. Make sure you have completed the FAFSA and accepted your annual maximum in federal student Stafford Loans, and exhausted all other financing options first.

2. Consider applying with a willing and knowledgeable co-signor, as doing so will likely increase your chances of approval and potentially lower your interest rate.

3. Review the Ole Miss ELM Select Private Lender List to compare loan products.

4. The lender with whom the student and/or co-borrower apply will conduct a pre-approval credit investigation and notify the applicant(s) as to approval or denial. If approved by a lender for a Private Student Loan, the student and co-borrower will need to review the Master Promissory Note (MPN) for accuracy, sign, and return to the lender. However, most lenders offer an e-sign option online.

5. Loan proceeds will be sent directly to the University. The proceeds will be applied to the student account to clear any balances, and remaining funds will be direct deposited or mailed directly to the borrower if direct deposit is not setup.