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As the school year comes to a close, students are embarking on more than just summer fun and sun. Many are looking for ways to secure student loans for the fall and the start of the next academic year.
When you want to cover your financial bases, start by applying for as much free aid as possible, including federal grants and scholarships. Next, consider taking out student loans, especially federal student loans, to help pay for tuition and other school-related expenses. Additionally, you may need to explore private student loans to bridge the gap between your federal aid and higher education costs.
As you explore your personal student loan options, it can be helpful to consider the perspectives of experts to help you determine whether these loans make sense for you. Start by exploring your personal student loan options here to see how much you can borrow.
Private Student Loans vs. Federal Student Loans
A private student loan is financed by private institutions such as banks, credit unions, or state-affiliated organizations. They are not affiliated with federal student loans, and as a result, they do not offer the same benefits as federal student loans, namely flexible repayment terms, borrower protection and the possibility of student loan forgiveness.
Federal student loans typically carry fixed interest rates, while private student loans can come with variable or fixed rates. Interest rates on various federal student loans vary but range between 4.99% and 7.54% for periods ending on July 1, 2023. Eligibility is based on your credit needs and other factors. Conversely, you need a minimum level of credit Qualify for private student loansWhich come with a wide range Student loan rates As low as 4.4% for those with good credit.
It’s a good idea to exhaust your federal student loan options before turning to private student loans. As Cindy Chanin, founder and director of Rainbow EDU Consulting and Tutoring, points out, “Another big difference is that personal loans, like mortgages or car loans, don’t have the same borrower protections as federal loans. These include loan forgiveness, public service and hardship deferments or forbearance.”
Explore your personal student loan options now to see if they make sense for you.
When are private student loans worth it?
“Private student loans are an important resource that helps students and families bridge the gap between the cost of attending college and other funding available from grants, scholarships and low-interest federally subsidized loans,” said Wendy H. McAllister, president and CEO of The College Foundation, Inc., which helps students with career and education planning, including applying for and paying for college.
Remember, you will need some credit history to qualify for a private student loan. “If you’re young, you probably don’t have enough credit established or income to qualify for a loan on your own,” says Leslie H. Tein, founder and principal attorney at Tein Law Group focusing on consumer and business lending. “This means you’ll need a cosigner to help secure the loan.”
When are private student loans worth it?
While private student loans are an excellent financial option to help cover your school-related expenses, they should not be your first choice.
“Students should never consider private student loans until they first complete the FAFSA and review the financial aid for which they are eligible,” says McAllister. “At this point, they can consider taking out a private student loan but they should borrow the minimum amount needed to cover the rest of their expenses.”
As with any loan, you must pay interest on the amount you borrow, so McAllister’s call for debt reduction is essential. While debt repayment may seem far off in the future, it’s still wise to prepare for the future when you can enjoy higher earnings post-graduation. As such, compare rates and terms from multiple lenders to ensure you can afford the loan over time. Use the table below to easily compare multiple lenders in one place.
When is it worth consolidating private and federal student loans?
According to Chanin, “Sometimes it can make sense to combine or consolidate loans. For example, it can be difficult to stay on top of multiple loans with multiple servicers. To streamline the process, it can make sense to combine and consolidate them into a single loan. One monthly payment.”
Remember, you can’t refinance Federal student loans Through the government, with only one private lender. This should be done with caution, as you lose federal protections and benefits, including income-driven repayment plans and public sector student loan forgiveness. But in some situations, it may be worth considering.
“If private debt has a high interest rate, refinancing it can get a lower rate, potentially saving money over the life of the loan,” Chanin says. “If the monthly payments are too large to handle, debt consolidation and extending the life of the loan can lower those monthly payments, although you’ll pay more in interest over time. The downside is that with refinancing, you may lose certain borrowers served by federal loans. Protection, so as always, be sure to read the fine print.”
Check out your student loan refinancing options here to learn more.
Bottom line
If you need financial assistance for college expenses not covered by federal financial aid, private student loans are a Beneficial options Surgery. It’s also wise to consider nonprofit lenders.
“Students and families should determine whether there is an in-state nonprofit lender in their home state or where the college is located,” McAllister said. “Nonprofit lenders often offer significantly lower interest rates than for-profit private student loan companies, and in some cases, their rates are lower than federal loan rates.”
Comparing multiple online lenders can help you identify the best personal loan option for you. No matter what type of loan you choose, take action Avoid types of crippling student loan debt Which can plague you for years to come.
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