Applying for Private Student Loans - Pros and Cons

Applying for Private Student Loans - Pros and Cons
Majority of Federal student loan programs provide
substantial amount of financial aid without credit checks.
The most preferred loan program is the unsubsidized loan,
which accrues interest while the student is in school and
making satisfactory progress. However unsubsidized loan
programs are need based that carries few other criteria and
hence it may be tough to qualify for. In most of the cases,
even after qualifying, unsubsidized loans cover part of the
total cost involved for education. In such scenarios to
make up for the entire expense involved borrowers may try
to avail a private loan.

However, Private loans have their own set of advantages and
disadvantages. Private loans are highly based on the credit
score of the applicant. In case of student's loan they
would consider the parent's credit history. Hence for those
with bad credit, they may end up paying high rates of
interest towards that loan. In addition to high interest
rates, private loans tend to charge extra fees. For
instance, for a loan amount of $4000, about 4% would be
charged towards fees before the loan is disbursed. The fees
is normally deducted from the loan amount, which in simple
term means, the borrower pays for $160 that he would not
see. A general thumb rule is every 3% of extra fees equals
up to about 1% more of the interest rate.

The major advantage of private loans is that they are
easily available. Since they exist with an objective to
make profit through fees and interests, they make the loans
available to most of the applicants. On every loan
application, they try their level best to get the loan
approved. On the contrary, the Federal lenders have strict
regulations to approve a loan and once rejected there is
usually no stand to expect a federal loan further. The
private loans in order to provide maximum customer support
employ skilled service professionals to solve the issues of
the customers promptly and professionally. Whereas Federal
loans usually have limited staffs where quality do not
usually meet the service provided by private lenders.

In addition to availability and better customer service,
Private loans are preferred for few other practical
considerations. Unlike the Federal student loans, the
applicant need not provide supplemental documentation or
fill up the FAFSA (Free Application for Student Aid) forms.
However the fees and interest rates may vary and depend on
the program features. Out of all the private loan programs
available, the most desirable would be the one with no fees
and that has interest rate equaling to 1% prime rate. Prime
rate is the fees that the banks charge each other for their
prime customers. It would be highly advantageous when the
Interest rate is equal or lower to the prime rate. As
mentioned earlier, it is also important to check for
additional fees since that can substantially increase the
cost of the loan.

To avail a private loan with such features depends on good
credit score of the applicant or the co signer. You may
check further information by digging into the specifics of
each of the private lenders available in the market. Or you
could compare the status online where there are lot of
charts and table with the features provided by each student
loan lenders and their individual loan programs are listed
in sites such as
(www.finaid.org/loans/privatestudentloans.phtml). There are
also loan calculators available online at
(www.bankrate.com/brm/rate/calc_home.asp) that would help
you check some sample scenarios. While checking the
feasibility from those scores, it is important to consider
the cost involved in terms of initial charges as well as
the interest rates throughout the tenure has to be
considered to derive at the exact figure.

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