At times, federal financial aid will not be enough to pay for your college education alone, particularly at private institutions. Therefore, if you have exhausted your other options, you may consider private loans to help pay for school.
As you begin your search, keep in mind that private loans are credit-based and the interest rates, fees, and other terms and conditions will vary widely. If you have a limited credit history, or worse, bad credit, you may need a creditworthy co-borrower such as your parents to obtain the most favorable terms and conditions. Be sure to fully understand all the conditions of the loan and don’t assume they all are the same. In many cases, private loans will not provide the variety of deferment options and extended repayment terms.
Just how much money is being borrowed for college? According to the College Board, college students borrowed $65.8 billion from the federal government which provided loans in the 2009-2010 school year. During this same time period, students borrowed $8.5 billion from state & private loans sources.
In most cases, private loans are in addition to the federal loans. Since federal student aid loans are capped by annual borrowing limits, private loans (which are not need-based) often seem like the only option for the additional education funding you may need. This, toppled by the fact that college rates are continuing to climb at all-time record highs, gives you very few options.
For example, in 2009-20010, if you are an undergraduate student and you depend on your parents or a guardian for financial support, you may only borrow $3,500 (combined based limit for subsidized and unsubsidized) during your freshman year. That amount goes up to $4,500 during your sophomore year and $5,500 during your junior and senior years.
According to the College Board, the average annual college tuition for the 2009-2010 school year is as follows:
- Private four-year $27,293
- Public four-year $7,605
As you can see, these amounts exceed your Federal Stafford Loan limits and as a result, you may have to consider a private loan.
Final Considerations
Before turning to private loans to fund your college education, do plenty of research on available scholarships, grants, work-study programs, and other free options. Once these options are exhausted, check with your parents for additional monies. As a last option, look into the private loan options. Remember, never select the first one. Compare the loans side-by-side to find the best option.