Private student loans are offered to students by banks, credit unions, and other private financial institutions. While many students take loans to pay for their college education, it should never be done as a first option. Here’s why.
The Downside Of Private Student Loans
Private lenders typically approve loan applications based on the borrower’s credit history. As a student, chances are you would not have had the opportunity to build your credit history, making it very difficult for you to get approved for a loan. Most lenders will only approve if you have a credit-worthy co-signer but using a co-signer is not without its risks.
The even bigger drawback with private student loans is they come with high interest rates. By the time you have finished paying off the loan, you will have paid back several times over the initial amount that you borrowed.
In comparison to federal student loans, private loans tend to be more inflexible for repayment plans. Most private lenders do not offer any forgiveness options, unlike federal loans.
What Are Your Other Options?
The first resource to tap into is free money by way of scholarships and grants.
Scholarship money is free, which means you do not have to return it and neither do you have to worry about interest accruing on the amount that you win. Spend time exploring scholarship opportunities and apply to as many scholarships that you are eligible for. There is no limit to the number of scholarships that you can apply to and the amount of money that you can win.
Grants are also free money but these are need-based. If you can submit the necessary paperwork to demonstrate financial need, you may qualify for a substantial amount of aid through grants.
If you are still coming up short and need to borrow money, your first option should be to take a federal student loan. These loans are funded by the federal government and come with much lower interest rates, flexible repayment options and even a forgiveness program, which is subject to eligibility. To avail of federal student loans you must first file your FAFSA or Federal Application for Student Aid.
The college you have applied to will put together a financial aid package based on the information you provide on the application. If, and only if, the financial aid offered to you is still not enough and you have no other way to get the money you need to cover your college expenses, only then should you consider taking a personal loan.
If You Find Yourselves at the Last Resort…
If you do find yourself needing a private student loan to fill the financial gap—as many students do—you’ll need to do plenty of research to find the student loan that works best for your personal situation.
College Raptor can help! With our free Student Loan Finder you can compare lenders and interest rates side by side!