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What is the interest rate on the loan and how is the rate calculated? Interest rates on private education loans vary widely, with some lenders charging interest rates between 11 and 18 percent. All private loans come with variable interest rates and may fluctuate due to market conditions. The interest rate on a private education loan is based on a market rate (PRIME or LIBOR or the 91-day Treasury bill) plus a margin.

The margin amount, the number of percentage points you pay over and above the market rate, depends on your credit worthiness. If a lender considers you a higher risk, you'll pay a higher margin and a higher interest rate on your loan. If a lender considers you a lower risk, you'll pay a lower margin and a lower interest rate on your loan.

Is there an origination fee? Many lenders charge origination fees on private education loans. Those fees range from 3 to 10 percent of the loan amount. There is no cap on origination fees. So shop carefully. A high origination fee could make a pricey private loan even more expensive.
When do I begin making payments? Most student loans don't need to be repaid until after you graduate. But some private loans may ask you to start making payments right away. Can you handle making loan payments while attending classes?

What is the late fee? Many private lenders charge late fees if your payment arrives 10 or 15 days after the due date. The late fees can be as high as $15 or as much as five percent of the payment amount due.

Can I defer or reduce loan payments during tough times? Hardship help varies from lender to lender. Does the lender offer deferment due to economic hardship or unemployment? Does the lender offer forbearance, a temporary postponement in payments? Will I be charged a fee? How long will the forbearance period last?

Will a private loan affect my eligibility for other forms of financial aid? It's a good idea to have a private loan checked out by a financial aid official at your college or university. The last thing you want is for a private loan to hurt your eligibility for more affordable forms of financial aid.

Weigh your financial options carefully. Federal student loans are the easiest and have the best rates. If you do want to use a private student loan, be sure to get the facts first and only borrow as much as you can eventually afford to repay

by Lucy Lazarony for Credit.com