Cash for College: Private Student Loans in a Nutshell

With the rising costs of education, and the availability of grants and alternative funding dwindling, many students are turning to college private student loans. This form of student loan is performed through a private lender, and can be used for other college expenses not related to tuition.

Obtaining a College Private Student Loan

Most lenders will agree that a private student loan should really be the last resort for paying for college after all other federal, grant, and scholarship options have been exhausted.  The federal government lists grants that do not have to be repaid at studentaid.ed.gov.  Federal loans are typically less expensive and have fixed rates.  However, federal loans are not without caps, which lead to needing additional loans to fill in the gaps.

In addition, it is important to pre-qualify the potential earnings for the first year out of college compared to the total amount of student debt being considered.  Monthly payments should run less than 10% of take home salary. 

Private student loans typically come with a 20-year repayment period, and payments start 6 months after graduation. The more desirable private student loans will have interest rates of LIBOR + 2.0% or PRIME - 0.50% with no fees. This loan is obtained directly through a private lender, and should be carefully considered in order to receive the best value. It is beneficial to have a parent or guardian co-sign with good credit to keep interest rates lower. 

A website that is a valuable learning tool is www.finaid.org. It offers a list of student loan comparison sites, as well as links and loan analyzers. 

Most private student loans require that the student be of legal age, and enrolled in at least a half time degree, graduate, or certificate program. 

Benefits of College Private Student Loans

The main benefit of obtaining a private student loan is that the amount borrowed may be used for other means besides tuition. Some of those include:

  • computers and computer related expenses
  • books
  • housing and Utilities
  • transportation
  • other Education-related Expenses

A college private student loan will have quick processing and availability of funds right away.  The forms do not have to be filed with the federal government, which also speeds things along.  Many times the process can all be filed online.

Disadvantages

While the benefits outweigh the disadvantages, it is important to know what can cause issues: 

  •  A credit check is required, which can make a co-signer required if the borrower has a lower rating. 
  • The student may have to reapply each academic year for the loan, and is not always guaranteed it.
  • Interest rates are higher on college private student loans than federal loans.

 

It cannot be stressed enough the importance of researching the various college private student loans first before signing on the dotted line. Borrowers should familiarize themselves with the provisions and terms of the loan, and be prepared in order to pay it back timely.  Private students loans are not dischargeable through bankruptcy, and will need to be repaid, even in default.


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