Applying for Private Student Loans - Pros and Cons

Majority of Federal student loan programs provide substantial amount of financial aid without credit checks. The most preferred loan program is the unsubsidized loan, which accrues interest while the student is in school and making satisfactory progress. However unsubsidized loan programs are need based that carries few other criteria and hence it may be tough to qualify for. In most of the cases, even after qualifying, unsubsidized loans cover part of the total cost involved for education. In such scenarios to make up for the entire expense involved borrowers may try to avail a private loan.

However, Private loans have their own set of advantages and disadvantages. Private loans are highly based on the credit score of the applicant. The credit history of parents are taken into consideration when deciding on the student's loans. Thus for those with a less than satisfactory credit history, they usually pay a higher interest premium. Not only do they have high interest premiums, they have additional charges as well. For example, if the amount borrowed is $4000, approximately 4% is payed as fees before the loan is given out. The commission or fee, is taken from the amount of the loan, and this just means that the applicant actually pays $160 that he does not get to use. A general thumb rule is every 3% of extra fees equals up to about 1% more of the interest rate.

The major advantage of private loans is that they are easily available. Since they exist with an objective to make profit through fees and interests, they make the loans available to most of the applicants. On every loan application, they try their level best to get the loan approved. On the hand, the Federal lenders have stringent criteria to adhere to when they consider an application and once an application is turned down, it is rare for a federal loan to be given. Professionals are trained to resolve problems of customers quickly so as to give as much customer support as possible, for private loans. Whereas Federal loans usually have limited staffs where quality do not usually meet the service provided by private lenders.

In addition to availability and better customer service, Private loans are preferred for few other practical considerations. This is different from Federal student loans as the borrower doesn't need to give details in the FAFSA (Free Application for Student Aid) forms or give supporting documentation. But bear in mind that the interest premiums and charges will be different and based on the different features of the scheme. Among all the private loan schemes, it would be best to have one without charges and an interest premium equivalent to the 1% prime rate. Prime rate is the fees that the banks charge each other for their prime customers. It is a good time when the interest rate is below that of the prime rate or at the same amount. As mentioned earlier, it is also important to check for additional fees since that can substantially increase the cost of the loan.

To avail a private loan with such features depends on good credit score of the applicant or the co signer. You may check further information by digging into the specifics of each of the private lenders available in the market. Alternatively, you can shop online to see the different schemes catered to applicants and you can even see specific loan schemes at sites such as (www.finaid.org/loans/privatestudentloans.phtml). You can also get loan calculators online at (www.bankrate.com/brm/rate/calc_home.asp) that would help you check some sample scenarios. It is essential to consider the payment in light of the initial fees paid and the interest that is paid throughout the entire term of the loan to get the full outlay of the loan when deciding on the feasibility.