Private loans, sometimes called alternative or commercial loans, are student loans provided by financial institutions or other organizations—not the federal government. Students often borrow these when they need to bridge the gap between their financial aid and their cost of attendance, or if they didn';t qualify for other forms of financial aid.
And while private loans can definitely be helpful to pay next semester’s tuition, you may find yourself wishing you’d found an alternate strategy when repayment arrives. Private loans can be much tougher to manage than federal student aid. That's because they tend to offer fewer flexible repayment plans and postponement options—and rarely offer loan forgiveness, even in cases of the borrower's death. Some private lenders may even place your loans in default if your cosigner dies.
But that doesn't mean you can’t successfully repay your private loans. Here are some tips to help you do this.
Locating Your Private Loans
Private loans are generally offered by schools, states, or financial institutions, including:
- Banks/student loan lenders
- Credit unions
- Credit card companies
- Directly from the school (institutional loans)
- Personal lenders
While credit card companies sometimes offer student loans, these loans are not the same thing as a credit card.
If you’re not sure whether you have any private student loans, visit AnnualCreditReport and pull your credit report for free. You can do this once every 12 months at no charge. You'll find a list of all your debts on your credit report, including your private and federal student loans. Most of your federal student loans will also be listed in the National Student Loan Data System (NSLDS®), making it easy to tell which is which.
However, some servicers do manage both federal loans and private loans. So, if you’re not sure which type of loans you have to repay—as well as what options you have to do so—contact your servicer directly.
Private Loan Consolidation And Refinancing
Some private lenders will allow you to consolidate the private loans they service with other private loans you have borrowed. Check with your servicer to find out. You can find these lenders online easily enough by searching terms such as "private student loan consolidation" or "private student loan refinancing."
You also may be able to refinance your private student loans into a new loan with a lower interest rate. Just remember that a new loan means not only a new interest rate, but also new repayment terms, which may or may not be as favorable as your existing loans' terms—this is especially true if you're considering refinancing a federal student loan into a private loan.
As you would with any new debt, do your homework before signing on with a lender. Salt® does not endorse or comment on particular lenders. However, we do recommend that you review a lender on the Better Business Bureau and the Consumer Finance Protection Bureau (CFPB) sites before choosing them. The CFPB is the resident student lender watchdog and will have a lot of information on complaints made against student loan lenders. Reviewing these sites will help you choose a lender who has a good reputation with their borrowers.
Bankruptcy And Private Student Loans
Even though private student loans may seem like other types of loans you can get from a financial institution, they are still considered an educational debt and are very difficult to discharge in bankruptcy. A qualified bankruptcy attorney can help you determine if you might be eligible for this kind of debt relief.
Private Loan Disputes
Many lenders now have ombudsman or enhanced customer care centers that handle escalated consumer issues. Making a phone call to one of those centers or sending a detailed, polite letter or email can be a good way to work out these kinds of disputes.
If you still aren't satisfied, the CFPB is a great resource for this as well. They help students resolve private education loan issues with their loan holders. You can file a dispute on the CFPB website. The CFPB ombudsman—a neutral mediator—can then help you and your lender find a resolution.