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Private Student Loans Can Help Pay for Education

Francine L. Huff
LoanBiz Columnist

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When is it time to apply for a private student loan? That's what many students find themselves wondering when seeking financial aid. Although the federal government has a variety of student loan programs that many people can qualify for, there are times when that aid just isn't enough. Here's what students considering private student loans need to know.

Alternative Education Loans

With the annual average cost of attending a private four-year college rising to $23,712 during the 2007-08 school year and the average cost at a four-year public school at $6,185, it's no wonder more people are turning to private student loans to pay for their education. Private student loans are often needed to help pay for education costs that aren't covered by federal student loans.

Applicants don't have to fill out federal forms for these loans because they're offered by private lenders. Federal student loans require a completed Free Application for Federal Student Aid (FAFSA). Generally, private loans require a credit check, so the higher the credit score, the more likely a person will be approved for aid.

Who Should Apply?

People who aren't sure whether they should apply for private aid should consider the following questions:

  • Will federal aid be enough to cover their education costs?
  • Will they receive any scholarships and grants?
  • Do they have good credit with no bankruptcies?
  • Are they in default on any student loans?
  • Are they a U.S. citizen or permanent resident?

Private Student Loans Cost More

Although private loans usually cost more than federal student loans, they aren't as expensive as credit cards. But private student loans generally have a variable interest rate tied to an index such as the LIBOR or PRIME. People who apply with a cosigner usually get better interest rates on loans. Federal loans usually have better terms and offer easier options for repayment and loan forgiveness.

If a lender offers a student more money than the cost of attending school, that could reduce the amount of need-based aid received. As a result, some lenders offer non-school-certified private student loans that aren't reported to the schools. However, if a school finds out about such a loan it may reduce any need-based aid.

According to the College Board, 52% of all financial aid is in the form of loans. That means that most students who need loans should be able to find them from either federal or private sources.

Sources
FinAid
College Board


About the Author
Francine L. Huff is a freelance journalist and the author of The 25-Day Money Makeover for Women. She has appeared on a variety of TV and radio shows.

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