When it comes to your kids, you only want the best — from the day that they are born through their high school graduation and beyond. When it comes to higher education, you may be struggling to know what is best, from which school they should attend to how to pay for your child’s top choice.
Student loan debt is at an all-time high in the United States, and is projected to rise as tuition costs continue to increase at colleges and universities across the country. Even with many parents putting significant amounts of money away for college, they often find that it is simply not enough to cover the high cost of tuition in today’s expensive higher education market. Many parents and students are turning to federal student loans, and when necessary, private student loans to cover the remaining costs of a college education.
Private student loans are offered to students enrolled at institutes of higher education across the country. Unlike federal student loans, there are typically no caps on the amount that can be borrowed — which can be both a good and a bad thing. While having access to more funds allows students to pursue an education that they may not otherwise be able to obtain, the resulting debt may be crushing for the student and/or the parents. Carefully consider the ramifications of taking out large private student loans before signing.
Unlike federal student loans, private student loans are never subsidized, and the interest rates can vary. At times, private student loans may actually have lower interest rates than federal student loans. However, interest rates on private student loans are often variable, which means that it can go up or down depending on the market. That can make a private student loan an expensive proposition, and can significantly increase the total amount that you repay over the life of a loan.
Private student loans will often require a co-signer for applicants under the age of 25, which means your child will not likely be able to take out a loan in his or her own name without you. The approval of the loan — and the interest rate — will be dependent on your credit score. It should be noted that cosigners may later be able to be removed through refinancing the loan. Many private student loans also require that you make payments while still in school.
Unlike federal student loans, private student loans offer few protections for borrowers who need help in the future. They typically do not offer loan forgiveness programs, and will generally not be discharged upon death or disability. Forbearance or deferment options are less generous than those offered by federal student loan programs.
On the whole, private student loans tend to be less favorable for borrowers than federal student loans. However, they do enable many students to attend college or graduate school who otherwise would be unable to afford the high tuition and fees. If you or your child are considering a private student loan, carefully review the terms to make sure that you understand them before signing.