When to Consider Private Student Loans
By Mark Kantrowitz
Students should borrow federal first, because federal student loans
are cheaper, more available and have better repayment terms than
private student loans.
However, there are several circumstances in which a student might
consider private student loans:
- Reached Loan Limits. The Federal Stafford loan has
annual and cumulative loan limits. Private student loans can fill the
gap between federal student loan limits and college costs.
- Lower Cost. Borrowers or cosigners with very good or
excellent credit may be able to obtain private student loans at lower
cost than the Federal PLUS loan.
- Parents Unable or Unwilling to Borrow. Parents may be
unwilling to borrow from the Federal Parent PLUS loan because the
student is not obligated to repay the debt. The parents may be unable
to borrow from the Federal Parent PLUS loan because of an adverse
credit history or other financial difficulties, but other relatives
may be willing to cosign a private student loan.
- Lost Eligibility for Federal Student Loans. Students who
have dropped below half-time enrollment or who are failing to maintain
the college's satisfactory academic progress (SAP) requirements will
lose eligibility for federal student loans.
- International Students Ineligible for Federal Student
Loans. International students are not eligible to borrow from
federal and state student loan programs. They may, however, be able to
borrow from a private student loan program, if they have a
creditworthy U.S. citizen or permanent resident cosigner.
- Not Degree-Seeking. Federal student loans are not
available for students who are not seeking a degree or
certificate. Some private student loans are open to students in
continuing education programs.
- Previous School Charges. Federal student loans are
available to pay off no more than $200 of previous school
charges. Some private student loans are more flexible, allowing the
student to borrow for previous school charges that were incurred from
6 months to a year ago.
- Education Costs after Graduation. Some private student
loans are available for education costs incurred after graduation,
unlike federal student loans. These include bar study loans for law
school graduates, and residency and relocation loans for medical and
dental school graduates.