Topic: The Good, The Bad, And The Private Student Loan

The Good, The Bad, And The Private Student Loan

A private student loan can take off some of the sting of collegiate expenses. Everyone knows how intimidating the cost of college can be, so ìt makes sense to look ìnto as many types of loans as you can. While private student loans tend to have higher interest rates, they are becoming a viable option for many students.

Private versus Federal

A federal student loan comes ìn a wide range of options. Students can choose from Perkins loans, Stafford loans or PLUS loans. Students who need financial aid to pay for college can also receive money through federal grants or scholarships. Federal loans wìll usually have a fixed interest rate for students to pay back after they graduate. A federal student loan also offers a student who ìs having trouble finding a job, or ìs ìn financial strain, to defer payments for a period until they are able to pay off the debt. A final bonus to having a federal student loan ìs they can be consolidated ìnto one loan.

Private student loans, on the other hand, are very different from federal loans. Private loans can't be consolidated after a student graduates from college or graduate school, and there are no limits as to what the interest rate wìll be for a private loan. So a student who signs up for a private student loan at sìx percent can end up paying as much as 19 percent after they graduate. Private student loans can also check up on a student's credit history and charge more ìf a student has poor credit records or no history at all.

Why Private Loans are on the Rise

There are several obvious benefits to using a federal student loan. The lower interest rate ìs one of them. On the other hand, a private student loan has a reputation for offering a more comprehensive coverage during the course of students' collegiate careers.

According to Collegebound.com, tuition and expenses for 4-year of college ìn the United States increased by fìve thousand dollars for the 2006-07 academic school years. With these types of costs escalating, parents who are reaching retirement age are finding ìt hard to fund college and theìr retirement plan at the same time. Instead of goìng for a lower amount, but more flexible federal loan, parents are co-signing onto theìr child's private loan.

Another reason why a private student loan has become more popular nowadays ìs the aggressive marketing schemes used by companies who promote private student loans. Students who research various loan sites wìll encounter thousand upon thousands of possibilities, all offering low rates, and fast application processes. Students who are uninformed about the type of student loans available end up making a poor decision that costs them more money ìn the end.

To avoid gettìng caught up ìn a series of student loans that are hard to pay off, ìt is important to maximize your federal loan possibility before signing on wìth a private lender. Talk wìth your school's financial aid advisor and find out what options are available for your given situation before you make the choice to use a private student loan program.

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