Private Student Loans Can Help Pay for Education
Francine L. HuffLoanBiz Columnist
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.
