Education is crucial to all and occasionally used by society to determine people’s livelihood. That’s why you find the majority running for student loans to facilitate their learning. Applying for students loan to help your education process is encouraged; usually, this comes at an expense that you must face and solve in the next stage of your life, after school. Therefore, try and make the best decisions possible before settling on particular loan types for a student. Elite Personal Finance has provided some insightful contents on the pros and cons of private student loans.
Pros of private student loans
Advanced borrowing limits
Those who depend only on federal student loans may fall short to reach their money goal, especially if going to a steep private school. With the federal student loans, you get restricted to the amount you borrow. That’s why the majority prefer alternative student loans since once you apply, there are higher chances of getting a loan and with a more borrowing limit. For instance, one with a private student loan can borrow almost 100 percent of his or her presence though depending on one’s education level.
Have State Controlled Statute of limitations
Ever heard of the word “statute of limitations?” It is a law restricting the set time for charges, and it varies by state ranging between three and ten years. However, when one defaults on private student loans, there are the statute of limitations and the vice versa to federal students. Therefore, one doesn’t have to repay the private student loans even if your debt has stayed long in default. But note that, it’s not advisable to default on any student loans to avoid harming your credit.
Rewards for commendable credit
The current federal student loan rates are a bit higher to those nearing to graduate. With the federal loan, your interest rate is the same as those of others, regardless of the credit. Besides, when you have private student loans, your interest rate may be as low as 2.47 percent. It means you can get rewarded if you have exceptional credit.
Cons of private student loans
Inconsistent interest rate
Most of the alternative student loans offer up-and-down interest rates to borrowers. For instance, if you borrowed with specific rate and as time goes the interest rate rise, also your variable interest rate together with your monthly payments rises. However, this is different to federal student loan; their loan interest rates remain fixed through the loan repayment.
Payment of private loan even after dying
The most exciting thing about the federal student loans is that with no cosigners, there is no repayment of debt after one dies. But this is opposite to private student loans. The fact is, carrying along the private debt; even after you pass away; lenders can take your property to settle the balance. In case your loan wasn’t cosigned, they can prefer to reduce the value of your inheritance for the same.
Getting a cosigner for a private student loans
Even if your credit score is excellent, when getting a private student loan it’s essential to have a cosigner. Remember, a cosigner is lawfully responsible for your debt in cases such as missed payments, defaulting of loans, and unable to settle all the balances among others. Though, this could be a challenge since one has to look for the best cosigner. His or her credit should as well be exceptional.
There is no federal subsidy
Those who prefer private student loans, they have to reimburse the interest as soon as they acquire the loan. That means the private loans have no federal financial support. It doesn’t matter if you are still in school; the truth is in some cases you might make interest payments as you continue studying. Failure to pay while schooling, all the vast balances will get added to your debt after completion. Besides, the federal student loans (though depending on one’s loan type), the government pays one’s interest while still in school.
Ineligible for income-driven repayment plans
If you are struggling to settle your monthly balances, and you have private student loans you are in a more significant problem. Note that, these private loans are not eligible for one’s repayment period and federal forgiveness. Also, the alternative student loans are ineligible for the income-driven repayment plans such as Pay As You Earn and Income-Based Repayment plans. But with federal student loans, you can have qualified income-driven repayment plans.
From the above content, it’s clear that the disadvantages of private student loan out ways the advantages. Therefore, to avoid digging into deficits in your education, start saving for it as early but if late for savings, consider the federal student loans. You will never be disappointed.