Private loans to bridge the gap
Private loans to bridge the gap
Private student loans are a common way for students to get additional money for school related expenses when federal and state funded loans and aid simply do not cover enough. The upward limit of what the federal government gives out in Federal student loans is a point of contention for many educators and students alike, and unfortunately, in most states, the funding for state sponsored student loans just is not there to provide enough aid.
Therefore the relatively new industry of private student loans has sprung up to help bridge this gap. In many ways private student loans are just like Federal and State student loans with the exception that they are issued through a private lender rather than a government contracted lender. In all actuality however private student loans are so similar to government-sponsored loans that students will notice very little difference between a private student loan and a federal loan.
The differences however are rather important therefore is always a good idea to talk with a financial aid counselor before making any decisions about private student loans or, at a minimum, read the fine print. The most important issue to consider is that private student loans to not face the same regulatory oversights that gradually mandated student loans do, that is to say these private student loans do not necessarily have the same interest rates that you are accustomed to receiving with federal loans, and they may not have the same payback rules.
Although it is common for private student loans to have the customary six month deferment after graduation it is by no means mandatory that the lender provide this grace period; so read the terms carefully. You will also want to talk to an accountant about any tax issues that can occur with these student loans. Since private student loans are different from federal financial aid the interest you pay on the loan is not always tax-deductible; and therefore you will definitely want to speak with whoever prepares your taxes to learn of any possible ramifications.
This is not to say that a private student loan is bad, just that they come with additional caveats that you need to be aware of in order to be a responsible borrower; however if you take the time to thoroughly read through the terms of your private student loan agreement and fully understand what you’re getting into then private student loans can be a lifesaver to the financially struggling students.
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