Did you know that private student loans are all you need to meet the increasing educational expenses? Unlike other loans, private student loans are provided by banks, online lenders or credit unions and not the federal government.
But, before that, it is important that you understand how they work. When you take a private student loan, you will need a cosigner in order to qualify for a private student loan. Also, with private student loans, you will not be eligible for protection, federal repayment plans, or forgiveness programs. Let us see them in detail.
Seven Things To Know Before You Take up Private Student Loans
You Can Get Extra Funding for College After You Cross the Limit On Federal Loans.
When you reach your maximum limit on your federal student loan, you can then resort to private loans to fund your school expenses. It is possible for you to borrow the cost of attendance at your school, minus other financial aid which you have already received. First, finish your Free Application for Federal Student Aid (FASA) and then apply for a private loan.
Federal Student Loans are Easier to Be Qualified for Than a Private Student Loan
For a federal student loan, you would need to meet basic eligibility criteria such as being able to be accepted by an approved program and not present default on any student loans.
For a private student loan, you just need to have a minimum credit score. Your debt-to-income ratio also needs to be in a certain range. In case you do not have enough money, you will not be approved for a loan by private lenders.
As a student, you do not have enough or any income, so you need to have a cosigner for you to qualify for private student loans. In case that you do qualify for the application, you still have to add a cosigner to your application to get a good interest rate.
Interest Rates and Loan Terms Differ Among Private Student Loan Lenders
When you opt for private student loans, there is no standard interest rate.
Private student loans have varied interest rates and no fixed rates. This interest rate is based on LIBOR or Fed interest rates.
One more advantage is that they do not have an origination fee. The varied rate of interest is also based on their incomes, credit scores and credit history.
Private Student Loans Offer Lower Flexibility in Repayment Plans
When you opt for private student loans, there are very few choices for repayment. There are no repayment plans based on income. In case that you do not find a job once you finish your graduation or if your income is too less, you need to pay the whole private loan depending on the amount that you agreed upon at the time of borrowing.
Private College Loans Do Not Qualify For Loan Forgiveness
When you take up private college loans, you are eligible for Public Service Loan Forgiveness along with other federal forgiveness programs. This happens when you fulfil specific requirements that are related to payment history and work. Students are eligible to pay off their balances after a period of 20-25 years.
You are not qualified for loan forgiveness options if you are a student and are applying for a private loan. You still have to repay your private loans in full even if you have worked in public service.
There is Lesser Financial Hardship With Private Student Loans
There are plenty of options available to adjust your payments by using an income-driven repayment plan. Or you can even pause them totally using forbearance or deferment. Thus, if you find yourself struggling with payments using private student loans, then you can go for federal student loans.
Private College Loans Are Needed To Be Repaid Even at The Time of The Bankruptcy
Even if you are in a situation of extreme hardship, private college loan consignors are still held responsible for repayment. Thus, at the time of bankruptcy, it is very difficult to discharge private student loans.
Now that you know what to keep in mind before you take up private student loans, it is easier for you to go ahead with it.
