Private Student Loans: What You Need to Know

private student loan

You did it! You worked hard, got a college acceptance letter, and graduated high school with a crisp, new diploma. Now is when the excitement and celebration of getting into college typically starts to give way to some anxiety. College is expensive and very few of us can afford to pay for a degree out of pocket. Most people know how federal student loans work, but what’s the skinny on private student loans? Here we look at the difference between the two and when you might need a private student loan.

Federal Student Loans

If you will be borrowing money to attend school in the fall, you’ll want to start with federal loans first. Federal loans are much more flexible in the repayment process, offering income-driven repayment plans as well as loan forgiveness programs. The terms and conditions of federal student loans are set by law with fixed interest rates. You will not be required to make any payments until after you graduate, leave school, or if change your enrollment status to less than half-time. However, sometimes federal loans will not cover the entire cost of attending college. This is where private student loans come in.

Private Student Loans

Banks or credit unions issue private student loans, typically with less repayment flexibility than federal student loans. The biggest reason to go for federal loans first is because private loans typically end up being more expensive than federal loans. Because the terms of the loan are at the discretion of your individual lender, different private loans can vary greatly from lender to lender. Depending on your specific circumstances, you could have a higher or lower interest rate, it could be fixed or variable, you may have to start paying for your loan while you’re still in school, or you may be able to hold off on payments until after graduation. The biggest drawback of private student loans is their variability, which can lead to confusion.

That being said, many students every year will take out private student loans to cover the costs of attending college. If you find yourself in need of a private student loan, don’t panic. There are plenty of good private loans out there, you just have to find them. This means putting in the time to do your research to find a loan with the best rates, fees, and terms for your situation. Don’t just settle for the first private loan you find. Compare interest rates, fees, and borrower protections across different lenders to identify the most affordable offer.

Which Private Loans have the Best Rates?

To compare all of the available private loans, check out your local banks and credit unions, but don’t be afraid to look online too. Some of the better deals on private student loans can be found through online lenders. One of the best ways to do this is through Credible, an online private student loan marketplace. Students (and parents co-signing for their children) can enter basic information to see multiple loan offers online. Credible allows you to compare terms, interest rates, and fees all on their website. Because many of these lenders operate via the internet, their overhead costs are lower, which could mean lower interest rates and fees for you.

How Much Should You Borrow?

As with any student loan, you will want to minimize the amount you borrow. This is especially true with private student loans, which tend to have limited repayment or forgiveness options if you have financial difficulty in the future. It is very common for students to take out loans for more than they really need. People overestimate their income after graduation and end up with loans they cannot afford to pay back. Unlike federal loans, there is no cap on private loans. A lender may let you borrow much, much more than you can realistically afford. In order to avoid being crushed under a pile of debt after graduation, only borrow what you absolutely have to and keep yourself on a budget throughout the duration of your college career.

Pay Back Private Loans First

If you do end up with a private loan, make sure this is your top priority when you start the repayment process. Many private loans begin accruing interest from the moment they are disbursed. If you can start making payments on these loans while you are in school, it is a good idea to do so. This can help you save substantially on interest in the long run.

If you are having difficulty paying back your private student loans, you’re not alone. Managing student loan debt is a heavy burden for many Americans. Veitengruber Law is a NJ legal team experienced in all types of debt management. We can provide customized debt solutions for your specific needs so that you can get the degree you need without fear of financial ruin.

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