The federal government allocates as much money as possible each year to help students pay for their college tuition. Unfortunately, with the rising price of education, you cannot always expect your federal loans to cover all of your expenses. Students who attend prestigious universities and/or who do not qualify for much financial aid often have to turn to private student loans to cover the gap.
Unlike federal student loans, you won’t find subsidized private student loans, and you won’t find much protection when it comes to interest rates, either. That’s why it’s important to take a few things into consideration when you start applying for private funding for your college career.
Do You Need Private Loans?
First of all, a lot of students assume that they won’t meet the financial need requirements for federal loans. Even if you don’t qualify for full funding, you may be able to alleviate your debt burden a little when you graduate by taking out a federal student loan and only using a smaller private loan to cover the rest of your financial needs.
So, before you do anything else, apply for federal financial aid by filling out a FAFSA (Free Application for Federal Student Aid). This application will not only be sent to the government but also to the schools you’re applying to, and their financial aid offices may be able to help you find funding through their schools and/or other avenues. If you can qualify for aid or find a scholarship, you may not need to find a private loan.
A Few Considerations When Looking for Private Student Loans
If you determine that you do, in fact, need a private student loan, be careful and take these elements into consideration as you make your choice…
- How will you pay while you’re in school? – Unlike federal loans, private loans usually require you to make payments beginning almost immediately. You should research monthly payment rates and find one that is affordable enough that you can support it with a part-time job or with help from your parents.
- What are the borrower incentives? – Private lenders are in competition with each other, and so they have to do things to set them apart from the crowd. Borrower incentives can include lower interest rates, deferred payments, or reduced principal. Shop around for the best borrower incentives and be sure to read the fine print before you make a commitment.
- Are you going to need a cosigner? – Like other kinds of private loans, private student loans are awarded based on credit history, not financial need. As a student, you probably don’t have much – if any – credit history to speak of, so you will likely need someone with good credit history to cosign on your loan with you. This person could be one of your parents or a legal guardian.
- Does the loan have fixed or variable rate interest? – All federal student loans have fixed rate interest, meaning your principal and interest won’t change after you sign for your loan. Private loans often have variable interest rates, meaning you can see your interest rate rise and/or fall throughout the lifespan of your loan. Payments on fixed rate loans will not change unless you choose to refinance or consolidate several loans. Payment on variable rate loans will change as the interest rate changes.
Tips for Choosing the Best Private Student Loan for You
As you take these things into consideration, remember that every loan comes with some risk. While federal loans have some protection against financial hardship built into them, private student loans don’t. You can expect collection agencies to be after you in a heartbeat if you default on payments.
With that in mind, you are likely going to find at least a few private loans with very attractive “start-up” or “introductory” benefits. Beware! You must have seen cable companies, phone plans, and other services offer extremely low rates for new customers. If you’ve ever signed up for one of these, you know the shock when you get the first bill after the promotional period is over.
In other words, if it sounds too good to be true, it probably isn’t. Those “introductory” offers usually only last a few months, and then interest rates and payments go through the roof. Always read the fine print and always get as much information on what you can expect throughout the time you’ll be paying on your loan.
Above all, never sign on a loan on which you cannot afford payments. If the monthly payments are too high, talk with your lender about negotiating a more affordable payment plan. If they won’t budge, move on to the next lender. The more research you do on your private student loans on the front end, the less you’ll regret them in the years to come.
Compare and Apply for Student Loans TuitionChart.com
TuitionChart.com works hand-in-hand with the best, most trusted names in private student lending to help students and their families find the money they need for college. Through use of comparison tools and loan searches, TuitionChart provides over 20 different loan options for students. TuitionChart.com is designed to help students and their families wend their way through the maze of financial aid information.