Student Loan Dodgers

Private student loans have gotten a bad rap lately. Legislators have focused on some extreme cases of borrowers who have gotten in over their heads, but for the most part, private student loans can come through where Federal student loans and grants leave off.

Grants are always the best route to go. They’re free money that you don’t ever have to repay. If you’re eligible for grants, get as many of them as you can. Grants may be one-time or renewable. Regardless, if you find them, go for them.

Federal student loans are also desirable, but they’re loans. You have to pay back the money, unless you meet the requirements for student loan forgiveness. Federal student loans are good, better if they’re subsidized, but not a bad deal in the long run. The disadvantage of Federal student loans is that they have lifetime lending caps. Once you’ve borrowed the maximum, you’re done with Federal student loans. The lending caps haven’t been adjusted in a very long time, so if you have to borrow your way through college, you may bump up against your limits quickly.

In addition, Federal student loans only cover “eligible expenses.” They can’t be used for living expenses, so again, if you’re borrowing your way through school, you can’t rely exclusively on student loans.

Private student loans can help you bridge the gap between your grants, what the Feds will lend you, and what your college education actually costs. (Funny enough, it’s always more expensive to go to college for a year than what the brochures tell you.) Private student loans don’t operate like Federal student loans do. There are no caps on interest rates, but then again, there are no caps on lending either.

The best approach to financing your college education will come from balancing your “financial aid portfolio” with grants and Federal student loans. Use college loans to make up the difference. If you shop carefully, you can find private student loans that offer great borrower benefits and good terms. Private lenders are also free to offer programs that you won’t find with lenders in the Federal college loan programs.

In short, don’t write off private lenders based on the horror stories you may have heard. Balance your financial aid, and use private student loans to cover what your aid package can’t or won’t.