Private Student Loans: Private Financial Aid Funding For Students

Private Loans & Your Financial Aid Plan

You've received your financial aid package, which contains both grants and loans. But what do you do when the aid you receive isn't enough? Private student loans can bridge the gap.

Today, the cost of attending a public educational institution can mean $15,000 out of pocket, and the cost of private schools is double that figure, or more. Federal loans can provide between $3,500 and $12,500 per year for undergraduates. If that's not enough, private loans may be your best bet.

Private Loans Offer a Popular Choice for Students

Students borrowed $17.3 billion in private loans in 2006, a figure that shot up 27 percent over the prior six years. The loans, borrowed from banks and other private lenders, helped cover rising college costs, including tuition, books, living expenses, and more. Lending chairman Peter B. Tarr speculated that private funding would exceed $20 billion nationwide for the 2008-09 school year.

What does all this mean to you? For one, you're not alone in securing private funds. Moreover, when banks and other lending institutions compete for your loan business, you can benefit. You can receive better product features, repayment plans, customer service, and other borrower benefits if you research the private loan market.

Benefits of Private Loans

Here are just a few benefits of securing a private loan:

• Taking out a private loan and repaying it in a timely manner is one way to improve your credit score for larger purchases later on.
• Private loans often have lower interest rates than credit cards.
• Interest rates and fees are often based on your credit score, or that of your co-signer. With good credit, lower interest rates may be possible.

Private loans can offer a sensible alternative to overextending your working hours--or your credit.

Co-Signing Your Student Loans

Ready to take out a private loan? You may need a little help. If you're just starting to build your credit, you may need a co-signer to help pass the credit check required by private lenders. For example, about 80 percent of private loans processed by student lender First Marblehead are co-signed. If you do get a parent or another party to co-sign, be aware that their credit is on the line along with yours if you fail to meet repayment terms.

No matter how you end up financing your education, research is key. Learn more about federal and private student loans on this site.

About the Author
Amelia Gray is a teacher and freelance writer in San Marcos, TX. Amelia earned a Bachelor's Degree in English Literature from Arizona State University.