I don’t know about you, but I’m sick of the political debate surrounding student debt. Whether
or not you believe the government should fund college, there is no arguing that student debt
can be crushing. I won’t pretend to know what the fix is, but I would love to see some change
take place while I’m still studying.
That’s unlikely to happen, and so for now we’re stuck with the few options available. When I
started studying, I took out a federal loan. It was by far the best option available, considering I had no credit history and the interest rate was fixed.
Unfortunately, my studies didn’t end as quickly as these loans anticipate. Anyone who has
been in my position, completing a more specialized course, knows that the next step is
better avoided: a private student loan.
Private student loans are not geared towards making your life easier. They come with higher
interest rates and the lenders are not as understanding as the government. However,
sometimes there’s no avoiding a private student loan. I couldn’t afford to continue college without one.
The good news is that not all private student loans are designed to destroy your working life.
On the contrary, some are actually as favorable as most federal loans. There are even some
advantages to taking a private student loan in these cases, for a good start check out the
CommondBond loan review which includes rates and other crucial information.
Advantages of private student loans.
The main advantage of a private student loan isn’t really an advantage – you get to take out
a higher loan to cover what your federal loan does not. However, there are actual
advantages. For example, if you do have a good credit rating, and can get someone to
cosign your loan, you can get an interest rate that is significantly lower than the fixed federal rate.
Furthermore, if you’re already working you can start paying it back immediately, meaning
that it doesn’t build up interest while you’re still studying.
But the key is to find the best private student loan for you, while avoiding the predatory loans
that have such a bad name.
Find out about borrower protections.
Federal student loans are designed to make it as easy as possible for students to pay back
the loan without getting into dire financial straits. They therefore offer borrower protections,
which most private loans do not. These borrower protections include things like:
- Deferment: if you can’t make a payment, they may let you defer it for a few months or
even a year or two.
- Grace period: for half a year after college, you won’t have to begin paying back your
loan, allowing you time to find a job.
- Loan forgiveness: federal loans are forgiven after a period of fifteen to twenty years
Most private loans don’t offer such protections, but some provide more leeway than others.
Not all private student loans require you to start making immediate payments, and some
even give you a six month grace period after leaving college. They are unlikely to give you
loan forgiveness, but they may allow for deferments in specific circumstances.
Find out whether a private student loan offers any of these borrower protections before
committing to it. The more leeway a loan company gives, the more likely to look after you
Changing interest rates.
One of the benefits of a federal student loan is that the interest rates are fixed, so you don’t
have to worry about having to suddenly pay back more than you bargained for. However, in
certain cases, unfixed rates are actually better.
This is particularly true if the interest rate gets lower as you build your credit score. As a new graduate, you can expect to start building your credit score as you work. With some private
loans, your rate will steadily decrease, until you’re paying back far less than you would on a federal loan.
Federal student loans are generally fixed and unchanging. However, private loan companies
have special offers, including discounts if you follow certain practices. For example, you may
get a lower rate if you sign up for automated payments.
This is one of the major advantages of private student loans. The lending companies can
provide value for using their service a particular way. Since you’re a customer, rather than a recipient of a government loan, the company may work to improve your experience.
But aside from the positive factors a private student loan may offer, it is important to
research the negative consequences of late payment or a bad credit score. A company that
will immediately fine you for late payment, impacting your credit score, is best avoided. So
too is any company that will drastically change your rate if your credit score gets worse.
There are certainly advantages to private student loans, and sometimes you have no choice.