Private Student Loan: Pros and Cons, Plus A Few Extra Tips
Thinking about getting a private student loan? These loans have some pros and cons, good points and bad points. Take a look below for the reasons for and against getting one of them to help you fund your college degree.
Also, at the end, you’ll find a few extra tips on how to pay for college and what to avoid.
Pros and Cons of Private Student Loans
1. Pro: Easy to Get
One of the reasons students like loans is that you can almost always find one. These loans come from banks and other lenders, and they don’t have the same deadlines that government loans have. That means that you can apply for one of these any time.
2. Con: Higher Interest Rates
When you get a private student loan, you will probably pay higher rates than if you got a Stafford or a Perkins loan, two loan programs sponsored by the government.
Private banks can charge any interest rate they want for student loans, while the government programs have a cap that they stay under, around 8%.
Bottom line: you will pay more to borrow money when you get a private loan instead of a government guaranteed loan.
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3. Pro and Con: No Limit
The government has set up limits on student loans. Undergrads can only borrow so much, and then grad students more, and so on. A private student loan doesn’t have the same limits. You are only limited by your credit score and your lender – the bank.
This one resembles a double edged sword. You can borrow more, like a student I read about who borrowed over $120,000 on privates loans for a photography degree. But that’s a huge debt to pay back, with large payments.
The government limits try to keep you out of that situation with your degree. This one is big. Try to avoid going deep into debt to pay for your education. You will be better off with less debt of any kind.
4. Pro: Less Paperwork
It’s true: the private student loan will have a shorter form. The FAFSA can take some time to fill out to get a government student loan.
Usually, it’s worth the time. You will save on your student loan debt. And if you need a loan next year, the time to fill it our will be much less.
5. Con: Other Benefits – Like Deferment
Private loans usually don’t offer much in the way of deferment for job loss, low pay, while you find a job after college, or if you go back to college later. This feature can help you make those payments.
Private lenders just don’t give the same benefits because they cost serious money. And if they do, watch out. You might be making your loan much bigger on the back end. Some lenders will offer the benefits by increasing your loan amounts, sort of like interest on interest.
3 Extra Tips on Paying For College
- Share. This can save you thousands. Share a room. Share a car. And if you can, share your food purchases. It helps you avoid living on ramen all through your studies.
- Go to a cheap school. I know, your school produces huge salaries. But if your field has an average wage, you probably won’t be far off that salary when you graduate. Think about a less expensive school unless you have tons of scholarships.
- How old are you? When you get to 24, get married, or if you have served in a war, you probably can apply for a Pell grant without your parents’ tax information on the FAFSA.