Information on Private Student Loans for Education
With the increasing cost of college many students hope to pay for their education with grants and scholarships. When these sources are insufficient to cover the price of tuition students may need to turn to private student loans to fund the difference. Private student loans are quite different than student loans offered by the government. This overview of private student loans provides information on borrowing private money for higher education.
What Can A Student Do With A Private Student Loan?
Private student loans can be used towards any recognizable college expense, even the cost of living. Some lenders will send the funds directly to the school and any funds left over can be disbursed to the student. Some lenders will send the funding directly to the student. However, it’s the student’s responsibility to get the money to the school to cover direct tuition costs. The money the student receives after expenses are covered can be used for housing and school supplies.
Where Can A Student Receive A Private Student Loan?
Students are turning to their banks and credit unions for private student loans. These lenders usually have various processes and programs. They may require a credit check and current employment, while others may not. Some lenders want to see a student enrolled in school for at least a half time status.
There are a few different payment options issued through private loan lenders. There are also various interest rates. Most will issue a loan based on a student’s cost of attendance. The cost of attendance is the total amount the school has estimated the college expense will cost including tuition, fees, room and board, books and supplies, and other personal expenses. The lender will issue the difference between the cost of attendance and other student aid that is received.
Why Students Select Private Loan Options
Even with the increase of Federal Student Loan interest rates, students are still applying for private student loans. Some families may feel they can arrange a better rate with their own lender. Other students just do not want to have a debt with the government. Here is a non-comprehensive list of reasons a student will apply for a private student loan.
- A student may have exceeded their aggregate loan limit
- A student needs to cover the remainder of their tuition after Federal loans have been issued
- A student needs additional money fast. Private loans can be issued faster than Federal loans
- A student may attend a college that does not participate in the Federal Loan Program
- A student defaulted on Federal Student loans and are not eligible
- A student may have an unresolved balance with another school
- The FAFSA application not complete or verification process on hold
- No registration with the Selective Service (male students)
- The student was convicted of a drug charge while receiving Federal Aid
Disadvantages of Private Student Loans
While there are many advantages of receiving a private loan, there are however disadvantages of taking a private student loan. Private loans are generally excluded from loan forgiveness programs. A student may also need a co-signer to be approved for a loan. If credit is not very good, a person could be looking at interest rates of over 18 percent. The interest will accrue while the student is in school, unlike the Stafford Unsubsidized loan. The interest rates may not be tax deductible. Finally, if a student is running into any financial problems once they are out of school, they may not be eligible for a forbearance or deferment payment option.