After you first take advantage of all other forms of financial aid including federal financial aid, federal student loans, and outside scholarships, you may discover you still have expenses you need to cover to pay for your education. That’s when you might want to consider private student loans.
Private student loans can be an option to help you fill the gap between what federal, state, scholarship and school assistance provides and what you actually need in order to afford higher education. Private student loans (sometimes called alternative student loans) are credit-based consumer loans to be used specifically for paying educational expenses.
Private student loans, like auto or home loans, are based on your creditworthiness. Most students will need a creditworthy co-signer such as a parent or other relative in order to obtain a private loan. Terms and conditions applicable to these loans vary greatly and it is important to pay careful attention to the terms you are offered before making a financing decision.
Factors such as interest rate, total cost of loan, Annual Percentage Rate (APR), length of repayment, loan minimum and maximum as well as loan fees should be carefully considered when researching and choosing a private loan.
One feature of many private loans is the ability to completely postpone (defer) repayment until you graduate from college. Also, private loans almost always offer lower interest rates than credit cards. Some lenders now offer fixed rate loans as an option and increasingly, lenders are offering loans that you can start to repay (in small amounts) while you are in school to help lower your overall debt.
While we actively encourage students and families to pursue federal student loan options before considering private education loans, there are many situations where a private loan may be a good alternative. Sometimes parents want their student to be responsible for paying for his or her education, in which case a private loan may be preferable to a Direct PLUS Loan for Parents. Also, parents with good credit may qualify for low private loan rates which may be better in short term repayment options. In other cases, having the full educational costs covered up front with federal and private loans may mean that the student can focus on their studies rather than having to meet some expenses with earnings from a part-time job. Whatever your situation may be, a private education loan can be an attractive and affordable option to help pay your education expenses. Just remember, borrow only what you need and carefully compare all of your options before you borrow.