After maximizing “free” grant offerings and fixed-rate federal student loan amounts eligible based on FAFSA forms, borrowers still often require supplemental funding covering remaining university costs. Private student loans extended by banks fill this gap but at potential peril lacking protections that need highlighting before signing.
Higher Rates Risk
Unlike federal figures fixed by Congress, private loan interest rates depend on applicant credit histories ranging from 3 to 15% variable exposing borrowers to interest rate spikes; risk worth the trade-off only for sheer funding necessity.
Missed Payment Consequences
While federal options allow income-driven flexibility, missed or late private payments trigger rapid credit wrecking and collection calls from unsympathetic creditors; ideal only for borrowers 100% positive they can service debt.
Limited Relief Options
With private banks holding the debt rather than the Department of Education, assistance programs tied to federal borrowing like deferments, alternative graduated repayment and forgiveness become unavailable regardless of hardships.
FAQs
Q: What are qualification criteria?
A: Minimum 620 credit scores get approved although stronger 720+ scores secure the most competitive single digit rates. Nearly all require passable credit excluding only a rare few.
Q: Are there IRS tax implications?
A: Unlike federal loan tax breaks allowing deducting up to $2,500 in yearly student loan interest paid, no such savings apply to private loan products meaning borrowers lose multiple ways.
While private lending fills unavoidable affordability gaps, downsides require serious cost/benefit analysis conductivity only once federal loan maximums reached and all other funding or scholarships get exhausted.