A college education is one of the most important investments one can make. However, the cost of a college education is something most people don’t have the cash to pay for. Therefore, student loans are important for funding the high costs of a college education. When it comes to student loans, there are only two choices; federal student loans or private student loans. Each has its advantages, but private student loans could be the better option for you.
Better Lending Rates.
Private student loans are based on credit scores, and if your score is good then you could get a better interest rate compared to federal student loans. A quick search of the leading lenders of private student loans reveals that private student loan interest rates are currently below 2.5% for qualified borrowers. (https://studentloanhero.com/featured/5-banks-to-refinance-your-student-loans/) Current rates for federal student loans are 6.8%. Since there is competition among lenders to fund private student loans, you can find private student loans with low interest rates, no lending or origination fees and a variety of options for paying your loan back.
Loans Not Based on Income
Federal student loans are based on family income. Students must demonstrate a financial need in order to receive loans. Private student loans are not income based, and you can get money for college regardless of family income. This greatly benefits students that are paying for college without their parents help, even if the family income is too high to qualify for federal loans.
Federal student loans have annual lending limits that are unrealistic and don’t cover the entire cost of a college education. According to the U.S. Department of Education, first year students can only receive a maximum of $5,500 for their first year of college. The loans limits only increase slightly, $1,000 for each subsequent year with a maximum of $7,500 for upperclassman. Private student loans will fund the real costs of getting a college education so that students can focus on school rather than how to fund the rest of their education. Private student loans will usually fund up to the cost of attendance, which is an advantage for those schools that cost more to attend.
Overall, private student loans offer more advantages and better benefits to funding the entire costs of a college education. Interest rates are lower, lending limits are higher and you can get a private student loan even if your family income is too high. The smartest decision one can make is to get a college education. The second smartest decision is funding that college education with a private student loan.