An In-Depth Look at Private Student Loans

History of Growth


All indications have shown that the need for school loans is growing exponentially. It's no secret that college costs have risen dramatically over the years.
According to the College Board's annual study on costs, tuition and fees on average have increased 35% in the past five years for public, four-year institutions and 11% for private, four- year institutions (figures adjusted for inflation).

For the 2006-07 school year, a four-year public institution cost $5,836 and a four-year private institution $22,218 - increases of 6.3% and 5.9%, respectively, over the previous school year. Of course, a realistic student budget also would include transportation, books and other expenses, which - according to sample budgets compiled by the College Board - push average total costs to $33,301 for a four-year private college, $26,304 for an out- of-state four-year public college and $16,357 for an in-state four- year public college.

To help pay for all of this, most turn to student loans. Nearly two-thirds of four-year graduates have taken a student loan, and their average debt is $19,000, about $10,000 more than it was in 1993 when fewer than half had student loans (according to figures compiled by the Project on Student Debt). Since strict borrowing caps limit federal programs, a great majority of students are utilizing private loans as a way to bridge the gap of today's higher tuitions.


The Need to go Private


Although it almost goes without saying, students should attempt to maximize the amount of federal money they may borrow through the Stafford program. Additionally, students should submit their FAFSA, which may qualify them for grants and scholarships. However, given the rising costs and limitations of federal assistance, the likelihood that students will need at least some private funding is high.
Although federal money can typically be borrowed at a lower rate, many private companies are able to offer loans that are of a competitive nature. Borrowing privately is a viable solution that many students take advantage of. The key is to shop the available loans and compare the many different products that are offered.

You should be looking for private loans that have interest rates of LIBOR + 1.8% or Prime + 1.00%. Ideally you'll want to try to find a loan with low fees (in some cases no fees). Loans of this nature will be competitive with federal loan programs. Interest rates are affected by the credit rating of the borrower and/or co-signer. Advertised rates are contingent upon approved credit.


Less Restrictions


Federally funded loans are limited in loan amounts that are capped over each year as well as over the duration of your education. Once that limit is met there is nothing further that can be done. Because private loans are privately funded they do not have to adhere to the same rules. While some private loans do have caps, many do not. The flexibility is greater to meet the cost needs that you may have.
Additionally, private loans can offer many different kinds of loans that do not necessarily need to pay for just your school. Private lenders can offer loans that may be used to purchase computers or study abroad. Also, some lenders offer loans that do not require a school certification (approval) or that may be used to pay for previous school charges.


Conclusion


It has been impressed upon students that the only good loan is a federal loan, however it's time to dispel that myth. Any loan can be a good loan as long as you're happy with the terms. Private loans offer pricing, terms and rates that can compete with those of the federal loan programs while having more flexibility than those programs. Should you need private loans, just remember to thoroughly check the terms and conditions of the loans you are considering. Having multiple lenders present offers is a great way to maximize your ability to choose the right loan for you. You may choose to utilize TuitionBids.com's application process that will have up to 6 lenders present you loan packages that will meet your needs. Go to http://tuitionbids.com to begin.