Q: Everything I keep reading online makes private student loans seem bad. My problem is I did not receive enough money in federal student loans to cover my college costs. If private student loans are not good, then what should you get instead?
A: Often times federal financial aid does not cover the entire cost of your college education expenses, and once you have exhausted all of your federal financial aid (and scholarship/grants), private student loans are the next step. Private student loans are not a bad, however they should not be abused. If you do not need to utilize private student loans, obviously thats an ideal situation, but it’s not a realistic situation for most college students.
Private student loans, when used correctly can be a good tool for filling the gap between what you have received in federal financial aid and what your actual college expenses total. Private student loans become most dangerous, when the borrower is not educated. Here are some important things to keep in mind when considering private student loans:
1. Private student loans should only be used after ALL other funding options for college have been exhausted.
2. You should NEVER borrow more then what you absolutely need.
3. Unless you have excellent credit, utilize the help of a cosigner with excellent credit (this will help get you the best rate possible).
4. Carefully read and understand ALL the terms and conditions of your private student loan. Private student loans are not regulated the same way federal student loans are, private student loan repayment options are very limited, and it is nearly impossible to discharge private student loans (even with bankruptcy)… so make sure you are prepared to handle the debt you are taking on.
Students sometimes apply for private student loans before ever filing a FAFSA (which even reputable private lenders will tell you is not your best option), they borrow more then they actually need, they do not research lenders, and they pay little attention to the rates, terms and repayment options. The combination of all of these things can lead to awful experiences (after graduation) for the borrow of private student loans. As long as you use private student loans responsibly and avoid the pitfalls listed above, private student loans are not always such a bad way to supplement the funding of your college education.