Private student loans to meet college tuition costs do offer an alternative to federal student loans, and according to recent reports, have become more generous in their repayment options in the hopes of drawing more students to this particular form of college financing. Obviously, federal student loans are one of the popular forms of financial assistance, especially when it comes to situations where a student is unable to acquire enough scholarship or grant financing to meet all of their tuition needs.
However, there are some problems which have arisen for students that have attempted to use private student loans to pay for college, but changes in repayment methods which are hoped to be more borrower-friendly may attract more students, as there are lower interest rates and even forgiveness of this debt for on-time repayment that could draw the attention of many student borrowers. Yet, when it comes to private student loans, a great deal of research needs to be conducted as they do still differ in many ways from federal loans.
One of the main areas where students must research their options for private student loans is interest rates, as some private loans may be more expensive than a federal student loan, may require a cosigner, or could come with either higher repayment obligations or interest rates after graduation. Currently, Bankrate.com reports that interest rates for Stafford loans, both in school and after school are around 6.80%, which again, can be an affordable rate for many students who are attempting to repay their debts after school. Federal loans, again, have often been associated with low interest rates and multiple repayment opportunities that can also provide affordability, so it’s easy to see why they have been a popular choice.
Furthermore, there are some financial advisors who feel that private student loans should not be used due to the fact that they can be more financially taxing on student, in terms of interest rate increases, limited repayment opportunities, and penalties that may be incurred for missed payments. Obviously, students who are repaying a federal student loan may have the opportunity to participate in a forbearance plan if financial hardship is present, can use low interest student loan consolidation plans to help make their monthly payment more affordable, and there are also forgiveness plans that may be available to public service workers as well.
Yet, there have been reports that some private student loans are offering deferred payment plans, low interest rates, and some loan programs may forgive a percentage of a borrower’s original balance if they make on-time payments and are in good standing with their lender. Again, interest rates are one of the areas on which students focus and many of these private loans are offering variable rate borrowing opportunities that can offer a student an interest rate lower than some federal loans, but there is a chance this rate could increase during repayment.
While financial advisors often suggest students exhaust all of their scholarship and grant opportunities before even considering loans, those who may be researching private student loans need to look at not only current interest rates, but potential fees or rate increases, as well as, avoid needlessly borrowing money from student loans even when they may have enough financing to meet basic college costs. In the end, students who must borrow are advised to keep a close watch on their overall debt, repayment plans, and keep the total costs that they will pay after graduation to a minimum, no matter if they are using federal or private loans to help pay for their education.