When the new school year begins, a person stands in the financial aid line and hopes that they will be able to gain enough money to cover the tuition. The constant increase of tuition constantly causes more and more students to take out loans, and this is not something that going away.
Those students who cannot completely fund their education through federal loans turn to private student loans. This can seem like the rational option when you are looking at everything on paper. Private student loans look a lot like the federal loans except for the fact that they are unlimited. However, it can be complicated to determine if private loans are the way to go, or if there are alternative options to pay for college.
Commonalities in Loans
Federal and private student loans have thing in common. Both types of loans can function as payment for books, fees, room and board, as well as tuition. Both loan types are designed solely for the purpose of paying for your education. Both of the repayment plans are designed to be long term so that there is not as much pressure on the student. This allows you to be able to pay off the loans once you have graduated and are beginning your career.
Difference in Loan Types
The differences outweigh the similarities. The government backs the federal student loans. Even though the federal student loans are expensive, they offer amazing deals for deferment, repayment, as well as forgiveness options. Federal loans also commonly offer a six-month grace period after a person’s graduation.
None of those options applies when you are talking about private student loans. It is known that private loans are riskier as well as more expensive.
One thing is that many people who take out private loans do not even try for the federal loans first. This mistake can make it so that many students spend a lot more money on their interest rates.
The Expense of Private Loans
Private student loans can be so expensive for several reasons
- Interest rates are not limited by the government as federal loans are.
- The interest rates of private loans are about twice the rate of federal loans.
What if You Need More Money
It can be troublesome for the student if they have used their maximum allowable federal funding and still have the need for more financial help. Many individuals are finding alternatives to using private student loans.
One unconventional alternative that many students find is called crowdfunding. Crowdfunding is a way for a large amount of people to raise money.
There are several websites that can help students to obtain funds for school needs.
- ScholarMatch offers a platform for students that apply for the unconventional scholarship that is funded through private donors. This platform is great for those wanting to donate. They have the ability to look through the students and pick the student that you want to directly fund.
- MBA students can use CommonBond to borrow or refinance your current loans. This site is most commonly used for those investors that attended their schools.
- SoFi is a site that allows a borrower to be in contact with alumni. This program is designed to so that a person can focus on helping students and graduates to consolidate on their existing loans.
There are websites that continue to surface for similar reasons. If you do a little searching you should be able to find several places to borrow from. It is however important to remember that before you borrow anything you make sure that you have investigated the company. Be sure that you also carefully looked at all the pros and cons of each lender.
Looking to the Future
A person can also use crowdfunding as a gift-giving program for their children to help them start college with some funds. Several websites give parents the ability to create a savings for their child’s education. This is beneficial when you aren’t sure what to tell be to give to the kids or birthday and holidays, just tell them to contribute to the college fund you have set up. This can also give a child the comfort in knowing that the entire community helped fund them to go to school, while taking some of the pressure off them.
There are many who have realized that if federal loans run out that here is no better way to handle paying for school. However, being willing to explore different options like scholarships, especially for your specific niche, private student loans, as well as crowdfunding. Remember to study each of the programs clearly, learn everything about their repayment requirements. Be sure that no matter which option you chose it is the best one for you now as well as in the future.