Whether your child is heading off to college soon or you’re planning for the future, seeking out the best student loan options is an important part of the process. As you assess the best sources of funding for your child’s education, you may be wondering what private student loans offer that federal loans don’t. Discover five advantages of a private student loan and learn why this type of funding is a smart option for your college student.
You Can Use Private Loans for a Variety of College Expenses
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One of the biggest perks of private student loans is that the borrower receives the funds directly. That means you can use the funds for the most pressing college expenses. You can apply the loan proceeds to tuition bills, textbook costs, dorm payments, new technology, or any other outstanding expenses. Since the funds go directly to you or your child, your family has total control over how to use them. In contrast, federal student loans go right to the school, which determines how to apply the funds.
You Can Choose the Right Lender to Meet Your Needs
When you opt for private student loans, you can choose the lender and the interest rate that meet your needs. If your college student doesn’t have enough credit history to draw upon, you may be able to cosign the loan to achieve a lower interest rate. In contrast, federal student loans don’t offer any options in terms of lenders or interest rates.
Private Student Loans Don’t Have Federal Caps
If you need to borrow a large sum to help your child pay for college costs, federal student loans might not give you what you need. In fact, you can only borrow between $5,500 and $12,500 in Direct Subsidized Loans or Direct Unsubsidized Loans per academic year, which could leave you with a large bill to foot yourself. In contrast, private student loans aren’t subject to the same caps. Instead, your credit history and borrowing power determine how much you can take out to help your child pay for college.
Private Loans Have Fewer Eligibility Restrictions
Since a private loan is between you and your lender, it isn’t subject to the strict eligibility requirements that federal student loans have. For example, to get a private student loan, you don’t have to fill out the Free Application for Federal Student Aid (FAFSA) form, and your child doesn’t have to register with Selective Service or be a United States citizen.
Private Borrowers May Get Longer Repayment Terms
When you apply for a private student loan, you’ll have the chance to negotiate repayment terms with your lender. In most cases, your repayment period could be 15 years or longer with monthly payments that work for your budget. In contrast, federal student loans are subject to a standard 10-year repayment term with few customization options.
With so many benefits to offer, private student loans are a smart choice for many college students. As your child gets ready to start college, take the time to research all your loan options and choose the ideal mix of funding sources for your family.