Private Student Loans: All That You Need to Know
Private student loans theoretically help students and their families complete the required financial payments for education, particularly when other resources are either exhausted or unavailable (such as scholarships, grants, federal student loans, and work-study programs). Private lenders such as banks are those who offer private student loans.
In order to qualify for a private student loan, your credit will need to be up to snuff. Should your credit not be where it should, you will be asked to provide a co-signer for the loan, who will be legally bound to paying for the loan should you not be able to. When it comes down to repayment, private student loans are lodged in between government loans and credit card debt. Though tempting and potentially a lifesaver in terms of paying for education, you should proceed with caution when dealing with these loans.
Their Problems
Private loans are a surprisingly popular way to incur extremely problematic student debt. One reason for this is that students may not necessarily demonstrate the financial savvy to understand what they're getting into; parsing through the fine print regarding matters of interest and repayment can be tough. Nevertheless, many students graduate to the unfortunate news of weighty monthly payments on these loans.
This is because the interest for this financing can occasionally reach up to 20 percent. Banks' participation and use of private student loans remains unregulated, and therefore sometimes disreputable. Colleges themselves sometimes steer students to these loans in a rush, not cognizant of dangerous variable rates or repayment terms. For example, private loans rarely grant the opportunity for deferment until after graduation, a nifty feature which may be available from government-sponsored financial aid.
Making Your Choice On Them
The first thing you absolutely must do is ensure that all other possible sources for financial aid are exhausted: everything, from grants and federal loans, to scholarships, work-study, and family resources as well. If you have not built a solid credit history, ensure that a parent or well-informed financial adviser is involved in the process of deciding on a private student loan.
You may even consider borrowing from a family member or friend, which may ultimately be less risky than such a loan. Know how the interest will translate into payments before signing on the dotted line. Never take up the first loan offer you encounter, either; comparison shop until you drop, essentially. Once you've taken up such a loan, be aware that serious payments await, but also stay positive - after graduating you are still likely to see increased lifetime earnings despite your debt.
For more information on private student loans, please check out FinAid, the New York Times, and CBS MoneyWatch.