Keeping Your Wits About You When it Comes to Private Student Loans Part 1
written by Credit-HQ ExpertPaying for college expenses is not an easy task. Not everybody has a fat scholarship to help them get through. One option that is tempting to a lot of people is using a private education loan. The lenders make it easy to complete a simple internet application and they offer low interest rates, which makes these loans hard to resist. But when you know some of the inside information about them, you can keep your wits about you when making decisions about college funding.
The first thing to be aware of is that private education loans are not part of the federal student loan system. The federal program is set up so everyone who qualifies gets a low interest loan that is a fixed rate and the terms are set up to the advantage of the student or borrower.
Private student loans are often variable rate loans and you must have a good credit rating to get this kind of loan. That means that a student just starting out might need to get mom or dad to co-sign to get the rate they see on the web page. It also means that, like conventional credit, if your credit score isn’t very good, you could end up paying a very high interest rate on a private student loan.
Private student loans are also susceptible to changes in the credit market, which means your interest rate is not set in stone. Another difference from the federal programs is the repayment options are set by the lender. While you might get a lender who allows you to defer payments until graduation, be sure you ask questions so you don’t face big loan payments while still in school.
Know If You are Protected
The federal student loan program is set up in such a way that protects for you, the borrower. These same protections are not in place with private student loans. A good example is in the ways that a borrower can seek a payment deferment or forbearance in the event of a financial setback such as losing your job. There are protections in place so you can get that lenience under the federal program until you get back on your feet.
When you are negotiating your private student loan, forbearance and deferment should be part of your evaluation. Don’t close on the loan until you know if you have a way to delay payments in the event of a financial emergency. It is not required that private lenders give you that help.
For these reasons always explore federal student loans first. Only turn to private student loans if the federal system is not an option for you. Don’t bail out on the FAFSA system just because it’s a pain in the neck to do the application and it takes a while to get the loan. But if you cannot use the federal system, be sure you have your wits about you with the right questions when you go after a private student loan.
Click here to see Part 2: Keeping Your Wits About You When it Comes to Private Student Loans Part 2
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