Private Student Loans are utilized when federal loans fail to cover the educational expenses and students need extra financial assistance.
There are different types of private student loans:
- Undergraduate Private Loans
- Graduate Private Loans
- Med School Loans
- Law School Loans
- Bar Exam Loans
Private Student Loans are also called “Alternative Student Loans” but we continue to use “Private Student Loans” term so that it won’t create any confusion with other alternative loans like “Graduate Student Loans” and the “PLUS Loans”.
While borrowing private student loan, there are few points which you need to consider.
Always Borrow Private Loans When Federal Loans are Paid Out
There are many type of private student loans available in the market, but none of them can compete with the greater benefits of federal student loans. Federal Loans have low interest rate and some of them come in subsidized form, which also have grace period of six to nine months while a private lender can’t provide all such benefits.
Necessary points to consider before borrowing a private loan:
· Your first option should be the Federal Loans. Just file the FAFSA before its deadline, so that you can be considered for some federal aid. Unfortunately, every year almost 2 million American students fail to get FAFSA because they first opt private student loans.
· When you file the FAFSA, you can be considered for federal grants like “The Pell Grant” also.
· When your federal aids are paid out, then look for state-funded loan programs. Many states offer students the money from state lottery coffers, grants, and scholarships for those with very low incomes.
· Look and apply for scholarships, those that are relevant to your educational goals and personal interest. You can’t get one until you don’t apply for it. Every year millions of dollars in scholarship money goes unclaimed because majority of students think that they won’t qualify for it or they are too lazy to try. Its not like all scholarships are competitive, there are certain scholarships that receive a handful of submissions. So it’s preferable to try for free money.
The Ins and Outs of Private Student Loans
Federal Student Loans are usually based on student’s level of need, while private loans are based on credit score. Overall, private loan is almost similar like other loans in the market. But it slightly have a lower interest rate because this money will be used for college. There are many banks and credit unions that offer special education loans for students with bad or poor credit.
There are so many financial institutions that offer the private student loans including large banks like Citibank, Chase, Bank of America, and Wachovia. Similarly, there are specialized companies like Sallie Mae, MyRichUncle, Astrive Student Loans and Act Education Loans which also provide private student loans.
Private Loan Terms:
- Payment options for private student loans can vary from lender to lender, but expect to pay something while you are in school. Some lenders will ask you to begin full payments immediately, some will offer you an interest-only option or offer you deferred payments while you are in school.
- Private loan’s borrower incentives are designed to attract borrowers. These incentives include interest rate and fee deductions for such things as making electronic payments and consecutive on-time payment.
- Origination fees are the common loan fees that are added on to loan principal.
Using a Co-Signor
If you are having poor credit or no credit, then you can only qualify for a private student loan with the help of co-signor or co-borrower. It would be better to co-sign with one of your parents. But in some cases parents do not have good credit in one should find some one who can trusts on you and knows you. The better the co-signor will have score, the better interest rate you get a loan.
You can build your own credit on private loan even you borrow with a co-signor. You can make it by making payments on time and there will be many lenders that agree to release co-signor from loan when you made so many consecutive on-time payments.
Repaying Private Loans
Always keep in mind that there are many private loans that requires repayments immediately.when you are in school, You should calculate first how much you will be expected to pay each month. If the amount that you have to pay each month is high and you can’t afford it then never sign for such a private loan. Though college education is necessary but making foolish decision about such loans can put you in trouble in future.
Some Useful tips for borrowing a private loan:
- Never borrow a loan that is has high interest rate.
- Be cautious about the introductory offers and interest rates, because these rates often shot up quickly after a certain period if time.
- Always look around and compare the lenders that offer best loan option then sign for it.
Though private student loans have their place , but always remember that your best strategy will be to pursue all other financial aid forms own like Federal Student Loans, grants and scholarships.
