With the cost of a higher education on the rise, you might end up with a college funding gap. When this happens, you need to find a way to secure the money you need to complete your education or to manage your student debt after you finish.
There are a number of options available to help you fill in the gap, including getting a private student loan. There are times it makes sense to look to private financing:
1. You Have Exhausted Free and Government Sources of Money
Many students apply for grants and scholarships. Additionally, there are federal student loans that come with certain protections. However, there are times when these sources of money aren't enough to cover all the costs associated with your college attendance.
If you have applied for other forms of financial aid, and you still have a college funding gap, a private student loan can help you close the distance. Add up the cost of attendance, which includes tuition and fees, room and board, books, transportation, etc., and see if you'll have enough money in federal loans to get by. If you can't get federal loans (which have caps on the amount you can borrow) or grants and scholarships to cover the full amount, private student loans can help because they don't come with the same limitations.
2. You Can Get a Better Interest Rate
Some private student lenders offer loans without origination fees and others charge low interest rates. If you have good credit or if you can get a co-signer, you might be able to qualify for the best rate on your private student loan. Interest rates on federal student loans are set by Congress, and sometimes they can be high enough to hold your finances back. Shop around for a good deal on your student financing before committing to a loan.
You might not have access to all the protections and programs associated with federal loans when you get a private student loan, but the interest savings can be worth it, especially if you are getting an education in a field that pays well and will keep you from qualifying for income-based repayment.
3. You Want to Refinance Your Student Loans
The government offers you a way to consolidate your federal student loans, but you might see a higher interest rate, and it's important to note that you aren't refinancing. If you want to refinance your student loan debt, you might be able to find a better interest rate with a private student loan refinance.
Another issue is that you can't consolidate your private student loans with your federal loans. This means that you might still need to make multiple payments each month. Refinancing with a private student loan, though, changes the situation. You can use your private loan to pay off your federal student debt as well as your private debt, all at once, ensuring you only have one payment. This can help your monthly cash flow as well as save you money in the long run on lower rates.
Before You Apply for Private Student Loans
While private student loans can be good for some, it's important to review your financial situation and your long-term goals before applying. Consider the school you attend and the major you choose, as well as look at your financial situation. Weigh the pros and cons and consider consulting with a professional to see if these private loans are really the right decision for you.