Private Student Loans

Student loans are alike other loans in that you borrow money from a lender and promise that you'll repay it with interest. The two general types of student loans greatly differ - federal and private. 

Before approaching private student loans, Credit Advocates HIGHLY encourages everyone to first apply for federal student loans. 

Federal student loans are: 

• Direct Subsidized Loans & Direct Unsubsidized Loans 
• Direct PLUS Loans (for graduate and professional students or parents) 
• Federal Perkins Loans 

Federal v Private Student Loans 

Federal student loans include many benefits (such as fixed interest rates and income-based repayment plans) not typically offered with private loans. Private loans are generally more expensive than federal loans. 

Federal Student Loans 

• You do not have to start paying until you graduate, leave school, or change enrollment to less than half-time 
• Interest rate is fixed and often lower than private loans & much lower than some credit card rates - Interest Rates & Fees 
• Undergrad students with financial need will likely qualify for a subsidized loan, the government pays the interest while you are a least half-time enrolled 
• No need for a credit check for most Federal Student Loans (except for PLUS loans) - Federal Student Loans can help you establish a good credit record 
• Don't need a cosigner to get a federal student loan in most cases 
• Interest may be tax deductible 
• Loans can be consolidates into a Direct Consolidated Loan - Consolidation Options  
• If you have trouble paying your loan, you may be able to temporarily postpone or lower your payments 
• Several repayment plans including options to tie your monthly payment to your income 
• No prepayment penalty fee 
• You may be eligible to have some portion of your loans forgiven if you work in public service - Loan Forgiveness Program  
• Free help is available at 1-800-4-FED-AID 

Private Student Loans 

• Many require payments while still in school 
• Variable interest rates, some greater than 18% - a variable rate may significantly increase the total amount you pay 
• These loans are not subsidized - you are responsible fro 100% of this loan 
• Require an established credit record. The cost of a private loan will depend on your credit score and other factors 
• You may need a cosigner 
• Interest may not be tax deductible 
• Private Student Loans cannot be consolidated into a Direct Consolidation Loan 
• May not offer forbearance or deferment 
• Check with lender to find out about repayment options 
• Be sure there are no prepayment penalty fees 
• Unlikely your lender will offer a loan forgiveness program 
• The Consumer Financial Protection Bureau's private student loan official may be able to assist you if you have concerns about your private student loan 

How do you get a federal student loan? 

Complete the Free Application for Federal Student Aid (FAFSA) 

Credit Advocates urges everybody to remember... 
It is too easy to have a relaxed attitude toward loans & student loan debt is at an all-time high of $1 trillion - outweighing credit card debt. It is imperative to consider our state schools and not just private colleges and universities. The prices of these institutions have no correlation to the cost of education. Before applying to colleges and universities think about the cost of school, room & board, and higher living expenses that are unavoidable in urban areas. 

Credit Advocates strives to educate the public on all credit & housing counseling matters. For all questions answered you can email me at rsimon@creditadvocates.org. 

rsimon@creditadvocates.org | creditadvocates.org  

Protecting your rights begins by knowing your rights!