• Columbus East High School

    East Olympians Torch


    Use Private Loans as a Last Resort
    (USA Funds, for Customs Publications, The Indianapolis Star, Feb 8, 2009)


    Before you take out a private student loan to help finance your college education, make sure you exhaust all other options, such as scholarships, grants, savings and federal student loans. These options are much more cot-effective than private student loans.



    Start by exploring whether you qualify for federal or state grant programs. Many of these programs are need-based but some are tied to the profession you plan to pursue. You’ll need to complete the Free Application for Federal Student Aid. The best part about grants is that you don’t have to repay them as long as you abide by the terms of the program.



    Scholarships represent another source of “free” money for college. Many private organizations, schools and government entities offer scholarships. Access an online search engine of 2.9 million scholarships worth more than $16 billion on RSA Funds’ Web site at www.usafunds.org/planning/index.html.



    Consider part-time work during school and get a summer job. Use your earnings on books, living expenses and recreational activities during the semester. Check with your financial aid office to see if you qualify for the Federal Work-Study program available through you school.



    If you find you need a loan to help make ends meet, start with the federal student loan program. Depending on your level of need, you might qualify for a Perkins loan or subsidized Stafford loan. Even if you don’t receive these loans, you can qualify for unsubsidized Stafford loans. In addition, parents of undergraduate students can take out PLUS loans.

    You’ll borrow these loans from participating lenders in the Federal Family Education Loan Program or directly from the federal government through the William D. Ford Direct Loan Program. The source of your loan depends on the school you attend.

    Although private lenders issue some federal student loans, these loans include federal guarantees of repayment to the lender as well as subsidies. Therefore, interest rates and repayment terms on federal student loans generally are more favorable than those you’re likely to obtain with private student loans.


    What’s the difference?

    Here’s how federal and private student loans differ:

    • Interest rates on federal loans are likely to be lower, and new loans carry a fixed rate. Private loans tend to have variable interest rates.
    • If you qualify, the government will pay the interest on your federal student loan while you attend school and during other designated times.
    • Fees on private student loans vary widely. Federal student loans carry upfront fees, and sometimes your lender or guarantor will pay these fees.
    •  You can obtain a Stafford loan regardless of your creditworthiness, and you can qualify for a PLUS loan as long as you have no adverse credit history. With a private loan, your credit score will determine whether you qualify and how high your interest rate will be.
    • The federal student loan program offers a variety of flexible repayment options generally unavailable for private student loans.
    • Stafford loans have set maximum amounts you can borrow each year, whereas private student loans and PLUS loans allow you to borrow up to the full cost of attendance minus other financial aid.
Last Modified on September 9, 2014