Private student loans come with much higher rates of interest compared to federal student loans, but that’s not their only downside. They also have rigid repayment terms and offer no scope for forgiveness. This is an option you should consider only if it is absolutely necessary and you’ve got your back against the wall.
Are you at that point where you are just a step away from applying for a private student loan? Asking yourself these questions before you take that final step will help you make a more informed decision.
1. Have I exhausted my search for scholarships?
Scholarships are your best source for free money. Let me rephrase that – they are your ONLY source for free money. Even if you borrow from family and friends, you are expected to return that money, with or without interest. With scholarships, you don’t have to return the money you win. Even better – you can apply to all the scholarships that you qualify for and you can keep all the money that you win.
Before applying for a private student loan, you must ask yourself if you have truly exhausted all avenues in your search for scholarships. This means searching for opportunities beyond the internet. Check community notice boards and the local newspaper for any local business or individual who may be offering scholarships for residents of the community. Ask your parents’ employers if they offer scholarships for dependents of their employees. Don’t forget to ask your high school guidance counselor too.
2. Have I used up all my other resources for cheaper loans?
Private student loans should be your absolute last option when you are looking for funding for your college education.
After you’ve exhausted your search for free money opportunities, your first choice for borrowing money should be low cost loans. Federal student loans are the cheapest loans available for students looking to bridge the gap between their available finances and the cost of tuition. To qualify for federal student loans, you will need to file the Free Application for Federal Student Aid or FAFSA.
The FAFSA gives you access to not just federal student loans, but also grants and institutional aid, all of which can add up to a substantial amount. Without filing the FAFSA, you cannot avail of these financial aid opportunities, which can be a huge setback to your finances.
3. Have I really explored all my college options?
So you’ve applied to as many scholarships that you could. You’ve also filed the FAFSA and received your reward letter from the colleges that accepted you. After adding up all the award money and financial aid, you find that you are still don’t have enough funds to cover the total cost. At this point, the only option left for you is to apply for a private student loan.
But wait — before you do that, take another look at your college choices. Is it really worth taking a private student loan to fund the cost of tuition at the most expensive college on your list? How bad would it be to scale back a bit and maybe choose a college with lower tuition fees? A cheaper college may not offer you the same facilities as a premier institution, but you can be sure you will get a good education without graduating buried in student loan debt. It’s something worth thinking about.
Check to see if the colleges that accepted you offer a tuition reciprocity program. Colleges with a tuition reciprocity program offers discounted tuition fees for students who live in certain states.
4. Is there any way I can cut back on the cost of room and board?
If you still find that you need to take a private student loan to bridge that gap between your available funds and what you need, it’s time to think of other ways you can save money. Explore all the room and board options in and around campus and go for one that saves you the most money.
Sharing an apartment off campus with a few other friends may work out cheaper than living in the dorm. You get to cook your own food too, saving you even more. The more you save, the less you will have to borrow by way of private student loans.
5. Have I considered a work-study option?
The work-study option is a great way to earn some money while you are still in college. It may mean putting in some long hours between working and studying, but if you can handle it, you will find that it will save you the stress of having to deal with private student loans after you graduate.
6. How long will I be in debt if I do take a private student loan?
Many students take private student loans without fully understanding the implications. Don’t make that mistake. Before you sign a contract with any private lender, make sure you understand the terms of the loan, the interest rates, repayment plans, how much you will have to pay back every month, and how long it will take you to repay the entire loan.
Also take into consideration your potential future income. Certain career paths pay more than others. If you are looking at a profession that traditionally doesn’t pay much, you could find yourself struggling to meet your monthly payments and risk getting deeper into debt. It is important to be realistic about the consequences of taking private student loans.
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