Federal student loans offer many benefits to students, but not everyone qualifies. Private student loans can provide educational lending options for people who do not qualify for federal student loans. They can also expand educational funds beyond what federal student loans offer.
These are a few reasons to consider private student loans to help pay for higher education.
Benefits of a Private Student Loan
There are quite a few advantages to consider when applying for private student loans. Not the least of these is that you can apply regardless of your family situation and specific income limits.
That is, private student loans are not based on need. Instead, they are based on credit. But if you don’t have sufficient creditworthiness to repay the loan, you may have a consigner sign up with you and receive your loan based on the consigner’s good credit.
Just remember, you will be responsible for repaying the loan at the risk of the cosigner’s good credit.
Types of Private Student Loans
Mostly, you have the option of student loans or parent student loans from most banks or financial institutions. These loans are entirely different and separate from federal student loans, which are offered and granted by the government.
Student loans: Many first-time college students are entering straight out of high school and have little, if any, credit history. This means you will likely need a cosigner. Student loans are to be repaid by the student. However, the cosigner could be called upon to repay the debt if the student defaults on the loan.
Parent student loans: Parent loans are set up to be paid by the parents on behalf of the student. The funds obtained from private student loans can be used for any of the following:
- Room and board (including on or off-campus housing and meals)
- Computers or laptops for school
The idea is to borrow a sufficient amount to cover your needs for the entire school year rather than going back and asking for an additional loan as the school year progresses. Once the money is sent to the school to pay for your tuition, you may request disbursements from those funds.
Paying Off Private Student Loans
Repaying your private student loans is important. Not only can defaulting on these loans damage your credit score, but it can also affect your ability to get jobs in some industries. It may also impair your ability to rent an apartment once you graduate. Use these tips to help pay off your private student loans as quickly as possible:
- Pay more than the minimum every month. More importantly, make sure the additional amount you pay goes toward the principal rather than simply paying ahead a month. This will offer the greatest benefit and may shave years off your repayment term.
- Refinance your loan if your credit and job make you an ideal candidate. This can reduce the term and interest rate saving you bundles of cash and time on the road to repayment.
- Make bi-weekly payments instead of monthly. This works great for people who get paid every two weeks from their employers as it allows you to make an entire additional payment each year. Double those efforts by paying a little extra, and you are golden.
Paying off private loans needs to be a priority. Doing so will free up your finances to save for other major purchases, like homes, cars, and more.
- Private student loans offer many benefits to consider over federal student loans.
- There are two primary types of private student loans.
- Repaying private student loans quickly gives you greater financial freedom, faster.
Private student loans provide students with options not available through the Federal Student Loan Program. Be cautious and choose wisely to get the right type of private student loan and focus your attention on paying them off quickly after college.