Are Private Student Loans Your Ticket to a Getting a Pricey Education?
Private Student Loans Explained
Not all student loan debt is created equal. Sure, the best path is to have no student loan debt, but not every college student can rely on mom or dad to foot the bill. If you are a high school senior applying to colleges or the parent of a prospective college student, you need to do your homework now. If you want to make the grade on student loans, read the report card below.
A for Advertising
The financial companies who offer private student loans sure do get an A in Advertising 101. In the recent six months, it was a rare occasion for me to watch more than one hour of television without being bombarded with commercials for private student loans. And they sure do make the loans sound attractive.
Are Private Student Loans Really A Good Idea?
In a nutshell, no. Private student loans are aggressively marketed to students to help cover tuition, books, living expenses, and even spring break. Private student loans are directly payable to the students, not the college itself, so many students like the flexibility they offer. The problem with private student loans is that you don’t get a locked-in interest rate, and the interest rate is usually very high.
Go to the Back of the Class?
What is a struggling student to do? Your best bet is to apply for government subsidized student loans first. This means the government will pay your interest while in college.
After you’ve loaned out the maximum amount of subsidized loans you qualify for, apply for unsubsidized student loans next. You’ll be responsible for the interest that accrues, but it is usually much less than private student loans.
Join Forces with the Enemy
If you’ve exhausted all possible financial aid options, and you’re already borrowing the yearly max for government subsidized loans, then it’s time to consider private student loans. Don’t avoid college if private student loans are the only way you can pay for it.
Always try to borrow government-subsidized loans such as the Stafford loan first. Try to work while going to school to save up enough for tuition, but only use private student loans as a last resort.