Private loan facts

Private or "alternative" student loans are the fastest growing and most profitable part of the student loan industry.
Over the past decade, private loans have grown from 5 percent of the total education loan volume to 20 percent, and this growth continues.
Private loans cannot be consolidated with government loans, but may be consolidated with other private education loans.
There are two types of private loans: school-certified and direct-to-consumer.
School-certified private loans are processed through a school's financial aid office and usually offer lower interest rates. They take longer to disburse and are paid directly to the school with any credit balance then being sent to the student.
Direct-to-consumer private loans involve no interaction with the school (other than enrollment verification) and usually have higher interest rates but they disburse directly to the student much faster than the school-certified loans.
Private loan interest rates range from 10 percent for students with good credit scores and up to 18 percent for those with poor credit histories. Compare current rates at bankrate.com .

The good

Private loans generally offer much higher borrowing limits than most government loans.
Private loans may be available to students who have lost their eligibility for government loans due to lack of academic progress.
Private loans may be available to international students.

Most private student loans have variable rates, whereas Ford Federal Direct subsidized/unsubsidized and PLUS are fixed-rate programs.
Private student loans cost more than government loans but are less expensive than personal loans or credit cards.
The repayment terms on a private loan are less favorable than government loans, especially when it comes to deferments, forbearance, and cancellation options.

Roughly 40 percent of students who are borrowing private loans could have received some or all of that funding through a loan that would have been less expensive to them.
Many students believe that reaching the Ford Federal Direct (subsidized/unsubsidized) limits is the end of government loan programs, so they take out private loans, instead of looking at other government programs like the Undergraduate and Graduate PLUS programs.
Many parents reject PLUS loans because they do not wish to be the loan holders responsible for payment. Yet they co-sign private student loans under the mistaken belief they are not responsible for those debts.
Most private loan lenders will not disclose interest or fee rates until you submit an application and they check your credit. Too many credit inquiries can damage a credit score so this impairs a borrower's ability to shop around.

What is the lowest interest rate and fee combination that you offer? How can I get that rate? Is the rate only for a limited period (an introductory rate), or for the duration of the loan?
If the interest rate you are offering is variable, is there a limit on how high the rate can go? How often is the interest rate adjusted, and how is it determined?
What rate can I get on a fixed-rate loan?
How long will I be repaying the loan? Is there a penalty for paying off the loan early?
When do I have to start making payments?
How long can I defer payments while I'm in school? What if I go to graduate school after my bachelor's degree? How often do you capitalize the interest? If I do not make payments while in school, how much will I owe when I do start making payments?
Will I lose my on-time payment discount with just one late payment or if I ask for a change in the payment schedule? What proportion of your borrowers actually gets the discounts you offer?
Are your discounts guaranteed, or are they subject to change later?
If I have difficulty making payments ('economic hardship'), do you allow me to defer or reduce my payments temporarily? Under what circumstances, and for how long?
How much can I borrow without reducing my eligibility for federal, state, or institutional aid?

Additional sources of information: