Getting the education you need to succeed in life is going to be costly. Many people cannot afford to pay for their college education, or graduate school, without some kind of financial aid or student loan. Student loans can come from various sources, including the Federal government. Private student loans are also available, and these can be obtained through various lending institutions.
A private student loan is similar to a regular private loan and it will have many of the same requirements. Your credit history and credit score will be checked. These may also be called alternative student loans. Some student loans will enable you to opt out of making payments while in school, and interest will most likely be charged the whole length of the loan.
Private student loans are going to be higher in interest rates than any student loans available from the government and they often do not come with many options when it comes to repayment. Because of the higher interest rate, a private student loan should only be considered after you have tried to get all of the Federal student loans possible.
Forbes warns that interest rates on a private student loan are often variable. On a Federal loan, they are fixed and will remain at that rate for the duration of the loan. Interest rates on private loans typically reset every quarter, and there is no limit to how high the interest can rise to. In addition, if there is a problem with repayment, the legal agency Nolo says that a Federal student loan provides you with several possible options including deferment, forbearance, or even loan cancellation. Some private student loans may only offer limited options and they will generally not be as good.
Student loans that are available from the private sector have been changing, and some of them now offer some interesting options. SmartMoney mentions that some private education loans may even offer to forgive up to 25 percent of the student loan if all payments are made on time – and if they graduate. The article also mentions, however, that caution needs to be given when looking at this type of loan with “great features” because they may have other extra fees, rising interest rates, and longer debt repayment periods – which increases the amount of the money loaned.
Federal loans should always be considered before ever even thinking about a private student loan. The government’s Student Aid website provides amounts of Federal student loans that can be obtained for both undergraduates and graduates. If you qualify, you should try and get all you can in the way of Federal loans first, and then meet the remaining needs with private student loans.
There may also be charges for originating the private student loan, too. SmartMoney also mentions that it could be as much as 10 percent, which could amount to about $900 on average. A private student loan may also have other charges, and the repayment period is typically 20 years – which will mean higher payments than the 30 years allowed on Federal student loans.
If you ever need to get a private student loan, be sure to shop around before signing on it. This will help you get a better deal with better terms – and possibly even better interest rates.