Fixed Rate Private Loans For College Students–Do They Help Pay College Costs Or Lead To Higher Debt?

Here in September there are some reports that say student loan debt may be averaging anywhere between $20,000-$30,000 for graduates who have some form of college loans, which will have to be repaid after they have left school, but the issue of student loans and debt that has been seen is one that has not dissuaded students from borrowing due to the fact that some simply cannot meet college costs at their current level. Yet, some students are exploring more nontraditional borrowing options like private loans due to the fact that some banks are changing their college loan lending strategy to offer more competitive terms so that they can present alternatives to federal loans for students currently in school.

The reasons for borrowing loans will depend on a student’s situation as some have strictly stuck to borrowing as a way to pay necessary costs, while others have borrowed loans on top of free forms of financial aid so they can meet extras like pay for rent, transportation, food, or other necessities that may arise for full-time students that can’t be met through a simple part-time job or funding left over from scholarships and grants. Yet, it’s the reasons for seeking out loans, particularly private student loans, which are currently being advertised at fixed rates and affordable costs to some students, that need to be explored by potential borrowers.

There are some banks that are, once again, looking to draw students into their particular student loan industry by promising these fixed interest rates, rewards for students who pay on time and stay current, and others may even have competitive rates comparable to federal loans. While there are few, if any, banks that can compete with federal loans in terms of repayment options, such as low-interest consolidation loans, repayment plans available for those facing financial hardships, or even periods of forbearance if a graduate happens to be unemployed, there are students that have considered these private student loans as a way to help them meet certain cost that may not be associated with tuition and fees.

Yet, there have been arguments made that private loans even at a fixed rate will be more costly and lead students to higher overall debt obligations, but this has typically come down to why a student is borrowing, how much they acquire, and whether they are getting a private student loan or loans on top of federal loans as well. There are some financial advisers who say that private loans should be an absolute last resort for students, but each student’s opportunity to borrow and potential financial position to repay these debts will differ and there have been arguments made that disagree with the stance that private loans are not a good option.

Ultimately it will be the decision of a student as to whether they seek out private college loans, but careful attention needs to be made and not only looking at the interest rate a student may receive on a private loan, meaning whether it is affordable and a fixed rate or adjustable, but students also need to remember that financial circumstances may arise after graduation that could make meeting even a minimum payment on these loans difficult. This uncertainty, particularly at the present time where the unemployment rate stands at over 9% had some students opting for a federal loans, if borrowing is necessary, simply because they can offer payment options that are more affordable and will only be a certain percentage of the student’s income after graduation.

When it comes to these private student loans that may offer fixed rates for students, it needs to be remembered that these rates could be higher than a federal loan, and when it comes to borrowing in general, students are often urged to keep the total amount of debt they acquired while in college at a minimum or at least no more than they expect to earn during their first year’s salary. Again, student loans are a problem for many as the average rate that has been seen does not provide enough caution as there are certain students who may have student loan debt that ranges from anywhere between $80,000 to $100,000 or more, and if students can only qualify for a higher rate on these private loans, there may need to be other strategies implemented.

Obviously, if a student exhausts all of their free financial aid resources, it may be helpful to turn to federal loans as rates may be more affordable and repayment plans more helpful in the future, but if students are considering these private loans on top of debt they have already acquired, it may be time to reconsider their ability to afford this type of debt, whether they have done enough to meet college costs through other financial aid resources, and simply calculate the entire costs that will come with repaying debts after they have graduated to see if further borrowing is going to be hurtful for their financial situation in the future.