Private Education Loans help bridge the gap between the actual cost of an education and the limited amount the government allows you to borrow in its programs. Private loans are offered by private lenders and there are no federal forms to complete. Eligibility for private student loans often depends on your credit score.
Some families turn to private education loans when the federal loans don't provide enough money or when they need more flexible repayment options. Private education loans tend to cost more than the education loans offered by the federal government, but are generally less expensive than credit card debt. The federal education loans offer fixed interest rates that are likely lower than the variable rates offered by most private student loans. Federal education loans also offer more flexible repayment and forgiveness options.
Private student loans typically have variable interest rates, with the interest rate pegged to an index, such as LIBOR or PRIME, plus a margin. The interest rates and fees you pay on a private student loan are based on your credit score and the credit score of your cosigner, if any. Generally, if your credit score is less than 650 (FICO), you are unlikely to be approved for a private student loan. An increase of just 30 to 50 points in your credit score is often enough to get you better terms on your loan.