Private student loans: the good and the bad

One of a parent’s proudest and most exciting milestones occurs when a child receives that cherished acceptance letter to college. But it also can be a stressful occasion, particularly if you learn that available scholarships and financial aid won’t completely cover tuition, fees and other expenses. If that’s the case, you might consider alternatives, such as private student loans.

With the average total student loan debt at $19,500 for a public four-year bachelor’s degree, according to The College Board’s 2013 Student Aid Report, it’s important to make sure you weigh out the pros and cons of private student loans before you start filling out the paperwork.

The Good

Lower interest rates
Lower is better when it comes to loan interest rates. With a private loan, you may receive a lower interest rate than with a public loan.

Good grades matter
Whether you’re applying for graduate school or a post-graduation job, good grades can make a big difference. But did you know that academic performance can also affect payments on your loan? Some private loan lenders will offer additional discounts, such as reducing your automatic payments, just for having good grades.

Shorter wait time
If accessing the funds to pay your child’s college expenses also comes with a need for speed, then private loans are a good option. In fact, application processing and disbursement of funding is much shorter for private student loans than for public loans.

The Bad

Mandatory credit check
Private loan lenders require a credit check before a loan offer is even made. If you have bad credit, you’re going to have a tough time applying for a private loan. And if you haven’t established credit yet, you’ll need a cosigner to complete the application process.

Less forgiving
If unanticipated life events make it difficult for you to make payments on your loan, deferment, and forbearance (grace periods) may not be offered by private loan lenders. Keep this in mind during the months after graduation when your child might still be looking for a job.

Variable interest rate
Interest rates are not fixed and often fluctuate with a private loan. So if you’re looking for a consistent interest rate throughout the years of repayment, a private loan might not be your best option.