Private Student Loans

Private Student Loans

Loans that are made to students by banks or finance companies are called ‘private student loans’. These loans are different from the federal loans that are available to students because they are not guaranteed by a government agency.

The advantage of a private student loan is that they can offer more money to a student because of the loans higher limits. Also, students do not need to pay back a private student loan until after they have graduated, usually not until at least six months after their graduation.

The disadvantage of a private student loan is that it can be tied to the credit history of the student. So this can mean that students with poor credit history will generally have higher rates and a higher loan origination fee than students with excellent credit history.

However, since private student loans are not tied in to the financial need of the student, a private loan is of the greatest advantage to families that are not qualified for many federal student loans. This is because these families may have too many assets or too much income to qualify for federal aid, but still have a need for some type of financial assistance in order to pay for college.

Be sure to do your research on all the terms of individual private loans because they do are different from lender to lender. Consider not only the interest rate of the loan, but also consider the terms and benefits of each loan. For example, find out how long each lender will defer payments and also find out their forebearence terms (the time when a student is eligible for stopping payments on a loan due to hardship). These terms are not set by the Department of Education but on the contract between the financial institution and the student.