Private Loans: A Last Resort To College Funding

Many years ago, students were able to afford college through a combination of grants, scholarships, federal student loans, and work study programs. Nowadays, given the drastic hike in tuition rates, more and more students are relying on private student loans (in addition to all of the other resources mentioned previously) to fund their college education.

As I’ve said many times before, you should be very careful when dealing with private loans.  These types of loans should ONLY be used as a last resort.  Unlike federal loans, private student loans usually have very high interest rates and rarely have any loan forgiveness options available.  If you or your family run into some financial trouble and can’t afford to repay private loans, then they can quickly spiral out of control and turn into a long-term financial burden.

Am I saying don’t get a private student loan.  No, but I am saying that you should investigate other forms of financial aid FIRST before committing to a private loan.  Also, you should do your research to make sure that you are getting the best private loan rates currently available.

Below I’ll outline some of your private student loan options:

1. Private Loans from Banks

Private loans from banks are generally the most common source of college funding after scholarships, grants, and federal loans.  Most major banks offer private student loans with variable interest rates and repayment terms that begin six months after graduation.

The recent issues in the financial market and loan industry have caused many banks to stop offering private student loans.  However, most major banks still offer private loans, but now have higher interest rates and stricter credit requirements.  The good news is that thanks to legislation passed by Congress, students can now find more information than ever before on specific loan requirements and repayment terms.

2. Credit Unions

If you or your parents belong to a credit union, then getting your student loan through the credit union could be a good option for you.  Usually loans from credit unions offer lower interest rates and more favorable repayment terms than bank-based private loans.  Similar to the process at a bank, students who decide to go through their credit union will likely have to complete a loan application and undergo a credit check in order to qualify.

3. Peer-to-Peer Lending

A fairly new way of obtaining a private loan is via peer-to-peer lending.  These student loans are made directly to the student from individuals belonging to a particular website that brokers deals and creates contracts.  These loans usually  have much lower interest rates than standard private loans and can be made among complete strangers or among family members.  There are a lot of different sites out there that offer programs just like this or something very similar.  However, be careful…these sites sometimes also charge some sort of fee for brokering a loan deal.  Just make sure that the fee is worth it in the long run.

Again, only consider private loans as a last resort!  Also, if you do decide to go the private loan route, make sure you read the fine print and understand what you’re getting yourself into before you sign on that dotted line.

Good luck!

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Lauren Anderson is a certified school counselor who's passionate about helping students all over the world successfully transition from high school to college! After spending 6 years as a business professional, she obtained her Master’s degree in School Counseling and now spends her spare time helping students.

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