Our office get a number of questions on private student loans for college as parents and students evaluate financial options. We believe the drawbacks are as following:
- Interest is often variable
- Less flexible repayment options
- Student may have to start making payments while they are still in school
- Higher limit on lending which will mean the student will be paying more interest
- The loan will be dependent on the student’s credit score
- If the lender requires a co-signer, the student may putting that person at financial risk.
However, there is a positive in considering a private loan. Friendly terms! Over the last 2-3 years I have been learning from some of our clients that they have secured a private loan with a lower interest rate then a Federal loan. For example, I talked to a client last week that retained a private loan at a 3% rate.
In summary, I recommend the student and or the parent should contact local banks and credit unions to learn what they have to offer before utilizing any unsubsidized Federal loan and should never turn down a subsidized Federal loan.
If you have additional questions or need information on how to lower college costs, please contact our office.