Student loan debt is a fact of life, and it isn’t going away. While you might think that too much student debt is a bad thing, it in fact provides funding to students who might otherwise not have any. Not only that, but it tends to have reasonable interest rates as well. They can pay it back while also taking advantage of the economic benefits that come with having an education.
There are different types of financing, including federal and private student loans. Federal loans are easy to qualify for, and have very good repayment schedules and rates. However, they often don’t provide enough money.
Many students choose private lenders such as Sallie Mae to supplement their federal ones. Sallie Mae can be a great option to help cover your school costs at an affordable interest rate. They have lots of different options for undergraduates, career training, and graduate student loans. Sallie Mae and other lenders are an important way to finance your education, but you need to weigh the pros and cons of your decision.
Pros of Private Student Loans
Good Interest Rates
If you’ve got good credit, then you can get a competitive interest rate. Not only that, but you may qualify for repayment terms that are beneficial to you. This can include longer payoff times and payment deferrals. That way you can pay it off down the road without having that burden while you are at school. Federal loans also charge origination fees, but private lenders don’t. The fact is, if you’re well-qualified, private loans can be a more affordable option than federal ones.
More People are Eligible for Private Loans
Federal loans have restrictions on who might qualify for them. For example, non-citizens are usually not eligible, as are people who are not full-time students. If you haven’t earned good enough grades or made progress in your schooling, you will not qualify.
Private lenders have a different set of criteria. They can get loans approved in all sorts of scenarios. For instance, a non-citizen can get approval as long as they have a cosigner who is a citizen. Students who are in certain programs who don’t qualify for federal loans can get help through private loans. This includes students in law school and medical school.
Many Options to Choose From
With private loans, you can shop around and find one that works for you. You can choose from Sallie Mae or other lenders. There are ones that have the repayments schedule, or the best rates, or anything else. The wealth of choice means that you can find out what is more beneficial to you. Plus, you have the option of refinancing your Sallie Mae student loan, so you can get a better interest rate and payment terms. With federal loans, you have one lender: the government. There is no choice, and there is no shopping to get the best deal.
Get The Funding You Need
School is expensive, and there are a lot of costs that you don’t expect. Your bills could be higher, or there could be a period of inflation, raising your costs. Federal loans have lower spending limits, so you may end up with not enough to get through school. However, private lenders have very high borrowing limits. Not only can you get funding for all of your costs, if you choose to switch majors or continue your education, you will have the funding you need. Federal loans often have a borrowing limit, but private lenders do not. Therefore you can keep borrowing to get the money you need to get your education.
Cons of Private Student Loans
Less Flexible Repayment Terms
Once you are approved, your rates and repayment terms are locked in. No matter what your income is, you have to pay back on your set schedule and at your set rates. Federal loans do have repayment plans based on income, so you can change your plan if need be. You will have to refinance a private student loan in order to pay for school. It can be scary to take out a private loan, since your income during and after school can be unpredictable. Pausing your monthly payments, for example, is much easier with a federal loan than a private one.
Higher Interest Rates
Private loans tend to come with higher interest rates than student loans. Those who have poor credit may also get especially hit hard. You can get variable rates, and this can be risky. The rates will change with the economy and you could find yourself in an untenable situation with a rate that is very high. Federal student loans have lower rates, and can also subsidize the interest that you pay.
No Forgiveness
With a federal loan, you can often ask for forgiveness for all or a portion of the loan if you are in financial difficulty. You have to show a consistent pattern of payments, however. If your income isn’t where you want it to be after graduation, then you do have some options.
Private lenders don’t operate like that. There is no forgiveness for any of the loan, regardless of your payment history and regardless of your income. You have to pay the full thing back without any exceptions.
You May Need Someone to Cosign for You
If you do not have good credit, then you may need a cosigner to help you secure your loan. Unfortunately, this is the case for many students, because they haven’t had a chance to build up their credit score. A cosigner should be someone who has a good financial record and good credit history. Hopefully it will never come to it, but they should be willing and able to pay off the loan if you are unable. This can be very hard for someone to do, since it is a big responsibility and they must trust that you will not leave them holding the bag. Federal loans do not require a cosigner. You can qualify regardless of your credit history.
Going to further your education is an exciting time. The last thing you want is to be worried about money and finances. That’s why we have private student loans and lenders like Sallie Mae. The key is for you to make the choice that won’t leave you in financial difficulty, and that is beneficial to you in terms of interest rate and repayment terms. Hopefully this pros and cons list has pointed you in the right direction.
