Some lenders advertise on TV, radio, or contact you by mail or phone
about "easy" loans for college. Be careful. The only easy part may be
getting in over your head.
What's the difference in a federal loan and a private loan?
Federal student or parent loans are government-backed (or
guaranteed) loans to help pay for college. They are low-cost,
fixed-rate loans and have discharge and loan forgiveness options.
Some of them are subsidized, which means the interest is paid for
you while in college.
Private loans (sometimes also called alternative loans) are
consumer loans made to individuals to help pay for college. They are
usually higher-cost, variable rate loans and are not backed by the
federal government. They do not have a guarantee or subsidy and do
not have discharge or loan forgiveness options. Their higher cost is
due to the higher interest rates charged on private loans vs. the rate
on federal education loans.
How are a federal loan and a private loan alike?
Both may be provided by either for-profit or nonprofit lenders.
Both are loans — money you have to pay back.
Both have to be repaid, even if you do not graduate or make as much
money as you hoped when you start working.
How you pay them back becomes part of the credit history you build
which affects your future borrowing, such as for a car or house.
When should you consider a private loan for your education?
Only after you have already applied for all the federal, state and
institutional financial aid you can.
If you did not qualify for financial aid or you need (not "want") more
aid than you received.
How should you decide about a private loan?
Talk with the financial aid office at your school about experiences
other students have had with different lenders.
Contact several lenders to compare terms, conditions and costs.
Ask questions such as:
What is the current interest rate on the private loan?
Is it variable or fixed?
Does everyone get the same rate on the loan? If not, what determines the rate?
Is a surety or cosigner needed (someone who is legally responsible to
pay your loan if you fail to pay)?
Will the lender making the loan provide service to you after it is made?
Can you delay payments while you are in school? Does that increase the
total amount you pay back?
If you borrow responsibly, a private loan can help.
