The private student loan is offered by private financial institutions or banks; and they are credit-based. In addition to federal assistance, private student loans can often be obtained by students to pay for costs above and beyond what the government is willing to fund.
Private student loans differ a lot from federal loans. Whereas the interest rate for federal loans is lower and set at a fixed rate, private loans have higher interest rate, variable interest rates and inflexible repayment programs. The loans are issued based on the credit history of the applicant and any applicable co-signer/co-endorser. This is in contrast to federal loan programs which deal primarily with need-based criteria, as defined by the Expected Family Contribution (EFC) and the Free application for federal student aid (FAFSA). Additionally, many international students studying in the United States obtain private loans (since they are ineligible for federal loans in many cases) with a co-signer that is a United States citizen/permanent resident.
The interest rates for private loans are consistent with the LIBOR Interest Rate (an economic indicator barometer used by the British Banker's Association in London) + 2.0% or the PRIME Interest Rate (an indicator to set rates in a range of financial products including the credit cards, mortgages, student loans, and more used in U.S.) – 0.50% without any cost. But keep in mind that these rates will also be adjusted to your creditworthiness and vary significantly by the lender
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