4 Situations when a Private College Loan Is Better than a Federal College Loan

Borrowers make the mistake of believing a federal college loan is always preferable to a private college loan. Federal student loans offer some advantages, such as no prepayment penalties and generally lower interest rates. However, there are some scenarios when private college loans will have the edge and can better meet your needs. Think about what your priorities are from the loan, and seek multiple quotes to determine which option will suit you best.
#1 You Need Living Expense Funding

Federal college loans never cover living expenses. This is a major shortcoming, because it costs money to simply attend the college beyond tuition. Even if you cut out most luxury expenses, you will still have to pay for books, housing and a dining plan. You may have a car payment or other costs associated with traveling to school in addition to these basic needs. A federal student loan, which is for tuition only and given straight to the university, cannot help. A private student loan can. Private loans may be available for direct college expenses other than tuition. Student credit cards can even cover entertainment or luxury expenses.
#2 You Do not Qualify for Need-Based Assistance

Federal student loans are cheapest for students who qualify for need-based assistance. Then, the loans may be subsidized, meaning a student will have long grace periods prior to repaying the debt. If you do not qualify based on your need, none of these benefits will be within your reach. You may have excellent credit or parents with high incomes to act as cosigners on a private loan, however. These benefits mean you can get a great deal on a private loan and be offered similar flexibility with a private lender. Financially affluent borrowers may get a better deal in the private sector.
#3 You Have an Asset to Collateralize

Students with an asset base are rare. Most students do not own a car, home or other valuable possessions. You may be an exception, though. You may have stock or savings. You may even be an older student returning to school who already has a home. In this case, a home equity line of credit is a great option to help pay for a degree. Any asset used to secure a loan will ultimately reduce the cost of the loan, and the interest rate may be as low as that offered on federal student debts.
#4 You are Working while you Study

Working your way through college is difficult, but it can be done. If you are planning on earning an income while you attend school, you may be able to escape with a much lower financial burden by taking private loans. Federal student loans are designed to help you have some flexibility with repayment, meaning there are grace periods throughout college and the years immediately following. You may not need these grace periods, and you can negotiate excellent terms on a private loan instead. Taking a private loan in this situation can help build your credit faster. 

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