Some Clearing Up On Private Student Loans

Some Clearing Up On Private Student Loans

by Devora Witts

Every single day we receive dozens of questions from students that inquire about private student loans. There seems to be a misconception about what private student loans are, that is probably due to confusing them with government loans or subsidized private student loans. Thus, some clearing up on this topic seems to be a good idea in order for future college students to know where they should seek financing.

The First thing that needs clarification is the concept: Private implies that non governmental institution is implied in the financial transaction. This excludes loans granted by private institutions where the government subsidizes the interest rate but it does not exclude loans granted by private institutions where a private non-profit organization subsidizes the interest rate. And most importantly, the word "student" in student loans implies that the money will be used to pay for college or other studying stage and nothing else.

Misconception: Subsidized-Unsubsidized

There is a misconception as regards to the characteristics of private student loans. Most people think that all student loans (both federal and private) are subsidized. That is a mistaken belief, though federal loans for students carry subsidized interest rates, private student loans do not necessarily do. And those private student loans that feature subsidized rates are awarded either according to the needs or the merit of the applicant.

Thus, if you do not qualify for a federal student loan or you need additional funds and you do not meet the requirements to qualify for private subsidized student loans, you will have to resort to regular private student loans that carry higher interest rates and less advantageous terms like the above mentioned federal student loans and private subsidized student loans.

Misconception: Paid After Graduation Or Not

Not all student loans are paid after graduation. This is a common mistake that most applicants make when searching for finance. If you are seeking finance to be paid off only after graduation you need to state so clearly when requesting loan quotes because there are many different repayment programs and the lender will not offer you these options right away.

Also, you should know that those loans which have the first installment due right away tend to be more advantageous than those paid only after graduation. Thus, if you can afford them with a part time job or with the financial aid of relatives, you should consider applying for this kind of loan. You will save thousands of dollars on interests this way and will become debt-free sooner too.

Nature Of The Private Student Loan Agreement

A private student loan agreement is nothing but a contract. Even federal student loans are contracts but the regulations alter the negotiation phase. However, with private student loans there are no alterations. The loan terms are negotiated between the lender and the borrower and the obligations that emerge from the contract must be fulfilled or you may be liable. Thus, do not forget to always read thoroughly (and specially the fine print) any private student loan agreement that is presented to you before signing. You will save yourself a lot of money, time and hassles that way.