What You Should Know About Private Student Loans


Private student loans provide a sound way for college students to fund their education.

Private student loans provide a sound way for college students to fund their education.

College students who need help funding their education will often turn to student loans as an important way to meet their financial needs. Federal Stafford loans have helped millions of students pay for college down through the years, a program that continues to meet the funding needs of families all across America today.

Inasmuch as Stafford loans are a lifesaver for many families, some families aren’t eligible for these types of loans. Fortunately, the private sector has stepped in by offering their own lending plans, what we call private student loans.  Commercial banks and other private financial institutions are the largest providers of these types of loans, hence the name.

A private student loan has several advantages and attributes including:

Loan limits are higher with a private student loan. In some cases, you can borrow as much as $45,000 annually to pay for your education. Limits are based on what your academic costs run.

Interest rates are competitive. Though loan rates for private student loans are higher than federal Stafford loans, interest rates on private loans are often quite lower than other consumer lending options. You can get an even lower rate if you have someone co-sign the loan. In this case the co-signer’s good credit is also considered when applying.

Loan disbursement funds go directly to you, not to the educational institution. This distribution method gives you some flexibility on how to spend your funds and can be used to cover related expenses including rent, food, new computer equipment, etc. Stafford loans are restrictive and won’t allow you to use these monies for some related school expenses.

Extended grace period. Many government loans will require you to make your first repayment some six months after you graduate. Similarly, private student loans work the same way, but certain lenders may allow you to wait a full year after graduation before repayment must begin.

Of course, if you choose to borrow money for school, you’ll want to only borrow the amount of money that you will need. For some first year students that can be difficult to predict, therefore if you choose to borrow more for the first year then you can be assured that you have sufficient funds for the entire academic year. Excess funds can always be applied to subsequent schooling, thereby reducing or eliminating the need for a follow up private student loan.

Finally, when it comes time to make regular payments, most students choose automatic deductions from their checking accounts to cover their monthly obligations. Your lending institution will supply all of the details you need when payments are due, providing a secure and sensible repayment plan that is right for you.


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Categories: Student Loans