Mastering Your Private Student Loans: Dos and Don’ts for Smart Borrowing


Paying for college can be difficult, whether you are pursuing an undergraduate degree, a graduate degree, a medical degree, or another program or degree. In fact, according to Finaid, the annual increase in college tuition costs exceeds the rate of inflation by roughly 8%. And while federally backed options, such as financial aid and federal student loans, can help cover some costs — along with other grants and bursaries — they do not always cover the entire amount required. 

Private student loans are a viable option for covering escalating educational expenses. Private financial institutions, such as lenders, banks, and credit unions, offer these loans, which can be combined with other funding sources to pay for education. In some cases, private student loans may even outweigh certain forms of federal loans.

However, it is crucial to realize that borrowing money for school through private student loans will not only affect you during your time in school, but will also be a decision you will have to manage after you graduate. Before committing to a loan, it is essential to enlighten yourself on the ins and outs of this funding source. Here are some do’s and don’ts to consider when it comes to borrowing money for education through private student loans.

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Understanding Private Student Loans: Key Considerations and Options

Paying for college can be difficult, whether you are pursuing an undergraduate degree, a graduate degree, a medical degree, or another program or degree.

Private Student Loan Dos

If you are considering using private student loans to pay for college, you must take the following precautions:

Compare interest rates

Even small differences in interest rates can add up over the course of your loan, so be sure to compare the interest rates offered by various lenders for private student loans. Not only should you compare rates directly, but you should also consider whether you want a variable or fixed-rate loan. There is a possibility that variable rates could become more expensive over time.

Compared with federal student loans that have fixed rates, one “downside of private loans is that the interest rates are likely to be variable, meaning your rates and payment amount may fluctuate over time, making it harder to budget,” says Omar Ochoa, founding attorney at Omar Ochoa Law Firm.

However, some private student loan providers may offer fixed-rate loans, or you may be able to refinance later if you qualify for a lower interest rate.

Compare repayment terms

The terms of a private student loan’s repayment are an additional factor to consider. The number of years that lenders provide to repay a loan can vary. Keep in mind, however, that longer is not always preferable, as a prolonged loan tenure can result in more interest accrual.

Lenders may also offer different repayment options, such as interest-only payments during education or the ability to defer all payments until after graduation. 

This can also affect the overall interest costs, so it may be useful to compare the various options that are suitable for your situation.

Evaluate perks and benefits

Ochoa notes that with private loans, students have “less likelihood of finding flexible repayment and forgiveness options” than with federal loans. However, this does not imply that all private student loan issuers are identical.

However, you may still be able to find benefits, such as cash-back discounts upon graduation and family discounts for siblings who take out private student loans from the same lender. Comparing these benefits could save you money over time.

Private Student Loan Don’ts

There are also several things you should generally avoid doing when selecting private student loans, including:

Accept the initial loan offer

It can be tempting to accept the first private student loan offer for which you qualify, particularly if you need cash immediately. However, this is a significant financial decision that could affect you long after graduation.

Therefore, compare private student loan providers to determine where the best overall offer is available. Some lenders even permit you to check your prospective interest rate without affecting your credit score. This can help you eliminate lenders with significantly higher interest rates (or less desirable loan terms).

Borrow more than you can afford

Although it may be tempting to borrow as much as you qualify for, this is not always the best strategy, particularly when you consider the cost of repayment. According to Angela Colatriano, chief marketing officer at College Ave Student Loans, a decent rule of thumb for students is to limit their total financing to what they expect to earn in the first year after graduation.

This can be challenging for some students, but it is essential to avoid falling into debt. If it appears that you need to borrow more money, you may benefit from searching for additional scholarships or determining if you are eligible for work-study programs.

Assume rates will remain unchanged

If you are currently researching private student loans, you can become acquainted with various options. However, you should not presume that the rates you see now will be the same when you apply for private student loans. It is doubtful whether interest rates will continue to rise or decline in the future, as the broader economic environment remains uncertain.

When you are set to submit an application, conduct a final comparison of interest rates from various lenders. And once you have your loan, you can continue to monitor interest rates to determine whether refinancing could result in cost savings.

The conclusion

Following these dos and don’ts for private student loans can help you potentially reduce financing costs while locating the necessary funding for your education. Because this is a significant choice, you should also consider consulting a reliable advisor. Your college may be able to connect you with student loan counseling resources if you are already enrolled. If you are not currently enrolled in school or desire additional support, you can still locate free or inexpensive credit resources online.


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Source: CBS News

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