Private student loans come from banks or other private lenders in order to help the borrower pay for their education. These are different than federal student loans, and you should exhaust all of your federal student loan, scholarship, and grant options before turning to a private student loan.
Why would I want a Private Student Loan?
In recent years, the cost of financing a secondary education has skyrocketed. This, in additions to more students going to school (which results in less financial aid to spread around), has made paying for an education a hardship for many people. Private student loans can help pay for the cost of school that is not covered by federal student loans, scholarships, or grants.
Why do I go to private student loans last?
When paying for your education, the best option is not taking out any student loans. This is because private student loans are not regulated by the same rules as federal student loans.
- Private student loans have a much higher interest rate. A high interest rate, sometimes up to 12% depending on your creditworthiness, means paying more money to repay your loan in the long run.
- Private student loans cannot be forgiven. The nice thing about Federal Student Loans is that there are many forgiveness programs for federal loans. However, most private student loans do not offer this, which means when you sign for that loan, you have completely committed to repaying the entirety of the loan.
- Private student loans are not eligible for bankruptcy relief. If a student finds himself or herself in a situation that only bankruptcy can relieve, they often find themselves in a tricky situation with what to do about their private student loans. These cannot be relieved by bankruptcy unless the borrower files a separate motion, and the borrower then has to prove to the court that they will not be able to live at a reasonable standard if they are expected to pay the student loan off in full.
- Private student loans require a credit check. Many students who are apply for a student loan do not have very good credit, which will result in a high interest rate or not being able to take out a loan by themselves. If they are not eligible for a loan by themselves, they have to find a trusted family member or friend to co-sign a loan for them in order to be able to continue to go to college.
Where can I find a private student loan?
- Most likely, your local bank will be willing to offer a student loan with a deferment period.
- Larger chain banks, such as Wells Fargo or Bank of America, will almost always offer private student loans
- Sally Mae is an excellent resource, not only for finding private student loans, but for finding outside scholarships and grants as well. Since scholarships and grants never have to be repaid, these are much more preferable to taking out federal or private student loans.