Private student loans are offered by private organizations including banks, credit unions, schools and state agencies that have changeable terms and conditions that are established by the lender.
Because they tend to be more expensive than federal loans, private student loan interest rates are typically high and make the loans riskier to obtain. However, private loans may be beneficial to some college students who have exhausted other means of financial support.
The following sections outline the difference between federal vs private student loans and gives students in the process of searching for loans the ability to select better loans from private sources. Since finding funding options for college is so important, students are encouraged to review the information provided in the sections below before deciding to accept loans to locate the best rates possible.
Basically, private student loans are loans awarded to students attending qualifying secondary institutions. Although private loans are more common to cover personal costs such as vehicles, homes or other expenses, many students also rely on private institutions to help cover tuition fees. In fact, loans from providers like Sallie Mae have been funding undergraduate and graduate students for decades and even offer loans to parents of children receiving private education from students in grades K-12.
Unlike federal student loans, private student loans may be more personalized and specific to students’ field of study. Though, there are numerous differences between the types of loans that may affect students’ decision to take them. The main differences between private and federal loans are as follows:
However, both loans may offer students tax-deductible interest and lower payment plans. Additionally, the loans are managed similarly in that students must contact their loan servicers directly to resolve issues, change repayment plans or postpone payments.
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Generally, private student loans are offered as a part of a school’s financial aid package and may be requested from other sources, and federal loans are received after students complete the free application for federal student aid (FAFSA) for the current school year. Due to the countless private loans available to new and returning students throughout the U.S., the process of requesting these loans may vary greatly depending on the lender.
To apply for private student loans, students are encouraged to research possible institutions or organizations that may distribute loans to them. For instance, students in search of private graduate student loans may contact their university or financial institutions that offer graduate loans for master’s programs. Based on their area of study, students should contact certain lenders to begin the application process. The steps involved in securing a private student loan from lenders throughout the country are as follows:
Applicants must fully review all applications and agree to the terms and conditions specified in them to proceed with the application process.
Note: Students are only advised to apply for private student loans after they have filed their FAFSA applications and received all possible federal student aid. If they still cannot afford to attend their college, then they may rely on other loans.
Private student loans may offer students great advantages including financial benefits and flexible deadlines. A list of potential benefits students may receive with their private loans is available below:
Students are encouraged to consider these benefits and ask their loan providers if they may qualify for them before accepting loan offers.
When choosing between federal and private student loans, students should consider the disadvantages of each loan. A list of potential disadvantages students may encounter when applying for or maintaining a private loan is available below:
Despite the disadvantages associated with taking a private student loan, they are still viable options for students who are struggling financially.
Related Article: Federal Student Grants