Private Student Loans

Education can be very expensive. It is one of the few services that can be subject to rampant inflation with very little consequence. As the cost of an education continues to increase finding appropriate funding sources becomes more and more important.

After filling out a FAFSA and several visits, e-mails, and phone calls to the financial aid department a student may find that all of their college costs are simply not going to be covered by the schools financial aid. At this point the options are limited. There are several expenses beyond tuition that need to be taken into account: books, room and board, and even entertainment.

Private student loans may be the answer. Private student loans should only really be considered when a student maximizes their Federal Stafford Loans. These loans can carry much higher fees and rates than Federal loans, as well as having less favorable repayment terms.

Even with those drawbacks private student loan growth has increased significantly in recent years, in part due to the increased costs of education. According to “Private student loan volume is growing much more rapidly than federal student loan volume (e.g., 25% per year versus 8% per year). If current trends continue, annual private education loan volume will surpass federal student loan volume within a decade.”

What are some things to look out for?

* High fees

Some private student loan lenders will offer a lower interest rate but tack it into the fees. Ideally a good private student loan will have no fees. If there is a particular reason, such as poor credit, that a student cannot get a loan without fees the fees can add significantly to the total amount that the student pays for this loan.

* High rates

Federal student loans will typically come with very low interest rates. A private student loan will almost always come with a higher rate attached to it. Those students with excellent credit and a strong co-signer may qualify for rates as low as prime-1%. The ideal loan will charge this without any fees attached.

Just because a lender is willing to offer this rate does not mean it is a great deal if it comes with attached fees. Remember to consider fees when determining the true cost of a loan.

Repayment options

What happens if the student is unable to attend full time for any reason? What if upon graduation it takes some time to find a career in the student’s field?

Federal loans will come with generous provisions for these types of scenarios, but not necessarily private student loans. Carefully consider the possibilities and the likelihood of one of these things happening before committing to a loan that does not offer provisions for these situations.

Despite these drawbacks private student loans offer a great deal of flexibility. They can be used for nearly any purpose from room and board to a new laptop computer.

Many banks and institutions offer these loans. For a listing of these visit There one may also find a comparison of private student loans by various lenders.