Private student loans have been in the headlines lately with government efforts to restrict them and make them eligible for bankruptcy discharge. But what isn't being talked about is the fact that private loans are often the last resort of desperate students who can't find money anywhere else for their education. Normally, students looking for money for college will receive grants, scholarships and student loans directly from the government.
The problem is that the cost of college has shot up so high and so fast that the amount of government student loans has not been able to keep pace. Because of this many students turn to private lenders such as Sallie Mae to fund their education. But what they don't realize is that they are not getting the same loan product that they would get if they took out a student loan directly from the government.
Here's the difference:
Private student loans often behave similar to credit cards. They have a higher than usual interest rate which is often variable, they also have fewer repayment options, limited access to deferments and little protection for the borrower. If a student is considering a private student loan, please get all of the facts before you agree to their terms.
Here are some questions you should ask:
- How much is the interest?
- Is the interest variable or fixed?
- Are there deferments available?
- What types of repayment plans are offered?
- How much time do you have to repay the loan after graduating?
- What is your estimated monthly repayment amount?
- How long will it take you to repay the loan?