What you need to know about private student loan debtPosted on September 6, 2017 by Michael Hoverson
There are two primary ways to finance a college education. You can either borrow money from the federal government, or you can secure loans from private institutions that specialize in loaning money to students. If you take out a loan from a private borrower, there are some important things you need to know.
- Federal loans provide mandatory protections for borrowers, including some deferment and forbearance options, but private loans offer borrowers a variety of rates and fees. The rates on private loans tend to be much higher. That’s why it makes sense to max out your federal loan options first.
- Federal loans are generally fixed rate loans, making it easy to budget every month for their repayment. But private loans are often times variable rate loans. They may start with a very low-interest rate so that they look attractive, but they will ramp up over time and could end up costing considerably more in the long run.
- It’s more difficult to secure a private loan, meaning you’ll need somebody with a long credit history and good credit scores to act as a co-signer for you.
- Federal loans have clearly defined lending limits, but private loans are more flexible and may offer a much higher ceiling in the amount of debt you can incur. This can lead to over-borrowing, and in turn, that can lead to severe financial distress when it comes time to pay the loan off.
- One good piece of news about both federal and private student loans is that they may be tax deductible depending on your particular situation. To get a deduction, a student must be enrolled at least half-time and meet certain income limits.
- Most private student loans cannot be discharged in bankruptcy proceedings. In other words, if you take out a loan, you’re stuck paying it back unless you die or become permanently disabled.
Hoverson Law Offices serve clients in Minneapolis, Bloomington and other nearby Minnesota communities.