Applying for Private Student Loans - Pros and Cons
Posted by admin on Oct 31, 2007
Majority of Federal student loan programs provide substantial amount of financial aid without credit checks. The most preferred loan program is the unsubsidized loan, which accrues interest while the student is in school and making satisfactory progress. However unsubsidized loan programs are need based that carries few other criteria and hence it may be tough to qualify for. In most of the cases, even after qualifying, unsubsidized loans cover part of the total cost involved for education. In such scenarios to make up for the entire expense involved borrowers may try to avail a private loan.
However, Private loans have their own set of advantages and disadvantages. Private loans are highly based on the credit score of the applicant. In case of student’s loan they would consider the parent’s credit history. Hence for those with bad credit, they may end up paying high rates of interest towards that loan. In addition to high interest rates, private loans tend to charge extra fees. For instance, for a loan amount of $4000, about 4% would be charged towards fees before the loan is disbursed. The fees is normally deducted from the loan amount, which in simple term means, the borrower pays for $160 that he would not see. A general thumb rule is every 3% of extra fees equals up to about 1% more of the interest rate.
The major advantage of private loans is that they are easily available. Since they exist with an objective to make profit through fees and interests, they make the loans available to most of the applicants. On every loan application, they try their level best to get the loan approved. On the contrary, the Federal lenders have strict regulations to approve a loan and once rejected there is usually no stand to expect a federal loan further. The private loans in order to provide maximum customer support employ skilled service professionals to solve the issues of the customers promptly and professionally. Whereas Federal loans usually have limited staffs where quality do not usually meet the service provided by private lenders.
In addition to availability and better customer service, Private loans are preferred for few other practical considerations. Unlike the Federal student loans, the applicant need not provide supplemental documentation or fill up the FAFSA (Free Application for Student Aid) forms. However the fees and interest rates may vary and depend on the program features. Out of all the private loan programs available, the most desirable would be the one with no fees and that has interest rate equaling to 1% prime rate. Prime rate is the fees that the banks charge each other for their prime customers. It would be highly advantageous when the Interest rate is equal or lower to the prime rate. As mentioned earlier, it is also important to check for additional fees since that can substantially increase the cost of the loan.
To avail a private loan with such features depends on good credit score of the applicant or the co signer. You may check further information by digging into the specifics of each of the private lenders available in the market. Or you could compare the status online where there are lot of charts and table with the features provided by each student loan lenders and their individual loan programs are listed in sites such as (www.finaid.org/loans/privatestudentloans.phtml). There are also loan calculators available online at (www.bankrate.com/brm/rate/calc_home.asp) that would help you check some sample scenarios. While checking the feasibility from those scores, it is important to consider the cost involved in terms of initial charges as well as the interest rates throughout the tenure has to be considered to derive at the exact figure.
Moses Wright is the founder of BulletPedia. He provides more helpful information on debt consolidation help and student loan facts on his website for free.
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