Navigating the world of student loans is an education unto itself. Making well-informed decisions can help you now and in the long run.
According to MeasureOne, private student loans make up 7.89 percent or $131 billion of outstanding US student loans. Like federal loans, they are used to pay for college costs including education and living expenses. The main difference is that private loans originate with a bank, credit union or online lender that sets parameters on how much you can borrow and how you can spend the money. They also carry fewer borrower protections than federal loans and tend to be more expensive. Since their interest rates vary over the life of the loan, you could suddenly face higher monthly payments—especially as interest rates continue to climb. Private student loans are best used to fill a payment gap after you max out federal loans. It is important that you make on-time payments since they are considered in default if they are more than 120 days past due. Most private lenders will then sell your debt to a collections agency or might even pursue a lawsuit. You are required to have excellent credit to qualify for the lowest advertised rates on private loans. Most borrowers are charged higher interest rates—sometimes double-digit. In addition, private loans are practically never forgiven.