With skyrocketing tuition, parents really find it difficult to afford children’s college education, just like you. Fortunately, I can barely pay my boy’s higher education costs. However, many families have to rely on private student loans to help them finish college.
Can you think of any benefits related with private student loans?
When other forms of financial aid still cannot cover the cost of attending school, many students will turn to private student loans. To some extent, it’s a good resource to help meet the total cost of your education. Private student loans usually serve as a nice way to supplement your federal financial aid.
Compared with federal student loans, private student loans have no restrictions on the total requested amount, which is usually much higher than federal loans. You can always take out as much as you need to cover all your education costs.
Wider use is another benefit for private student loans. This kind of education loans can be used for a multiple of purposes, like laptops, books, board and lodging etc. As for federal student loans, the rules are usually very strict. Federal loans can be only used for paying the fees of regular classes for a particular academic year.
Unlike federal student loans, private student loans are not need-based. Even your parent has a good income, your application won’t be denied as long as you have a good credit score. In regardless of these benefits, are there any drawbacks for private student loans?
Private student loans do more harm than good, yes or no?
One thing for sure, private student loans come with many cons. Private student loan borrowers usually have to pay a much higher interest rate and processing fee. For example, the interest rate for a direct subsidized loan, disbursed between July 1, 2011 and June 30, 2012, will be fixed at 3.4%. If you’re considering getting a Chase Select Private Student Loan, the rate can be as high as 9.25%.
The high interest rates can result in extremely high monthly payments, making it difficult for many students to make timely payments after graduation. Let alone the heavy financial burdens, private student loans also have much stricter repayment terms than federal student loans.
Some lenders offer no grace period for students. It means that you may have to make payments in school once the loan is fully disbursed. Moreover, approval of private student loans is not an easy task. Good credit is required to qualify for private student loans. Most lenders will require you to have a consigner.
With a better understanding of its pros and cons, you may think that private student loans really do more harm than good. Anyhow, I don’t think it’s a good idea to apply for a private student loan to cover your education costs.
Are there any nice alternatives to private student loans?
Given the fact that private student loans may become an increasingly troublesome burden on graduates, it sounds to be a better option to turn to other finance sources. In fact, there’re many other good alternatives to private student loans. These options can help finance your tuition fees, living expenses and other education-related fees.
1) Federal student loans
The U.S. Department of Education provides a variety of federal student loans to help pay for your education after high school. Typical federal student loans include Perkins Loans, Direct PLUS Loans, Direct Stafford Loans and Direct Loan Consolidation.
Federal student loans always feature low interest rates and favorable repayment terms. Additionally, federal student loans do not have restrictions on credit. It’s a nice feature since most students have limited credit. Therefore whenever you need a loan to finance your college education, federal student loans should always come as your primary choice.
2) Scholarships and grants
Unlike student loans, scholarships and grants are free funds that do not have to be repaid. They are the ideal way to avoid private student loans. Almost each school has its own scholarships and you can check to see whether you qualify.
As for grants, various federal grants are available if you’re attending four-year colleges or universities, career schools and community colleges. Major federal grants include:
- Federal Pell Grant – Federal Supplemental Education Opportunity Grant (FSEOG)
- Iraq & Afghanistan Service Grant
- Teacher Education Assistance for College and Higher Education Grant (TEACH Grant)
Non-federal grants are also available. Some schools provide institutional grants to help students whose education expenses cannot be met through federal loans, scholarships and student earnings.
3) Part-time jobs
If you have to take loans to attend classes, why not get a part-time job? Anyhow, being a full-time student is not a luxury that every student can afford. Working part time may not necessarily affect your studies. You just need to work out a proper schedule and work harder on your classes. Part-time job earnings can significantly relieve your financial burdens.
The Federal Work-Study program is a great opportunity for undergraduate and graduate students to obtain part-time jobs. The program aims to help students with financial need earn money to pay education expenses. Through this program, you can always find community service work and work related with your course of study.
As for your employers, you may work for your school if you’d like to work on campus. If you do not mind working off campus, you’ll work for a private nonprofit organization or a public agency.
4) Employer Tuition Assistance Programs
Many employers now sponsor tuition assistance programs for their employees. If you’re considering going back to school to increase your job skills at your current position, ask your employer to pay for your education. Most employers are willing to pay the bills through a tuition reimbursement program.