Should Private Student Loans Fund Your College Cost Gap?

What are private student loans

Should Private Student Loans Fund Your College Cost Gap?

Published January 21, 2018 | Last Updated November 2nd, 2023 at 09:14 am

What are private student loans

As your student looks at options to finance a college education, you may be struggling to keep everything straight. There are various sources of funding – federal loans, scholarships, private loans, and more.

Understanding the pros and cons of each source of money is vital to making the right decisions for your family. What are private student loans, and how do they compare to other funding? Find out more now!

Private Student Loans vs Federal Loans

As parents and students try to figure out how they will close the gap between the net cost of college (after receiving financial aid and merit scholarships) and what they can pay, many may look towards loans to cover the difference.

If you’re in this situation, you may be asking “How do I get a student loan?” The answer is not always straightforward.

In particular, there are two primary sources of student loans. Many times students focus on federal student loans, but unfortunately, federal loans may not be enough to cover the full cost. Private loans for college can give your child an additional option to pay for the school they want to attend.

Federal loans have several important advantages over private student loans. They are funded by the federal government, and offer repayment flexibility that may not be available privately. In addition, subsidized federal loans allow interest accrual to be delayed until after graduation.

Federal loans also offer fixed interest rates, and you don’t have to repay them until you graduate (though for unsubsidized loans, interest accrues while students are in college). Private loans for college may require repayment to begin while you are still in school, and variable interest rates can cause payments to rise unexpectedly.

Pros and Cons of Private Loans for College

The primary benefit of a private student loan is that it may be the only way to fill the gap between your student’s federal loan options and the actual cost of college.

Banks also tend to have higher caps on borrowing, allowing a student to borrow more than their school’s listed financial need. This can be helpful if living expenses are a concern, but it can also put your child in a big hole after graduation.

A private student loan allows you, the parent, to avoid borrowing money for your student’s schooling. However, because private loans have more strict credit requirements, your child may require a cosigner or face high interest rates and fees without a cosigner.

Be sure your student fully understands the cost of a private loan. Variable interest rates may look attractive today, but over time rates can rise and cause payments to be much higher than expected. In addition, fees can drive up the cost of a loan.

Finally, there’s less flexibility when it comes to loan repayment. Your student may need to start payments during school. If there are income difficulties or your child doesn’t immediately find work, the school loan payments will still be due. There are fewer protections if financial hardship occurs.

Is a Private Loan Ever a Good Idea?

The private student loan market exists because it can be hard to afford school with only scholarships and limited federal loans. They can be a huge help to students who need a little extra to afford their chosen college.

Having your child get a reasonable private loan can help keep you from needing to borrow on their account, which can protect your financial future. It’s important that a student only borrow what they truly need, and not what they think would “be nice.”

Also, be sure your student shops around. Different banks can offer radically different terms, fees, and rates. Look for fixed interest rates, flexible repayment options, and other favorable arrangements.

Remember that bankruptcy cannot dismiss school loan debt. What your child borrows, he or she is stuck with, even if times get hard. If you cosign, you’re stuck with them too, so think carefully before you do.

If your child can choose a more affordable school, that may be a good choice. Or, you can ask the school to reconsider the financial aid packageto see if more money is available.

[How To Write A Successful Financial Aid Appeal Letter]

Choose a Private Loan Carefully

Debt is serious business, and you and your family should fully understand all funding options before you make your choices. Federal student loans should always be a first choice, but private loans for college can help you afford a school as well.


Use R2C Insights to help find merit aid and schools that fit the criteria most important to your student. You’ll not only save precious time, but your student will avoid the heartache of applying to schools they aren’t likely to get into or can’t afford to attend.  

Other Articles You Might Like:

What You Should Know Before Cosigning a Private Student Loan

How to Find the Best Private Student Loans

Student, Parent, Private or Federal Loans: Explore All the Options




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