Private education loans, also called alternative loans, exist outside of the federal student loan program.
Private loans are variable-rate commercial loans that require credit checks. So you’ll need a good credit history or a co-signer to land a low rate. If you have less-than-stellar credit, you could end up paying a much higher rate, as much as 18 percent.
And because rates on private loans are variable and fluctuate according to market conditions, whatever interest rate you qualify for could change.
The repayment terms on a private education loan vary by lender. With some lenders, repayment begins immediately. Other lenders may allow borrowers to defer loan payments while attending classes.
A private loan is an option to consider after you’ve exhausted your more affordable federal lending options.
And finally, remember to be reasonable about your college financing. It could spell trouble if you borrow more to pay for school than you can reasonably repay after you graduate and start working. You can reduce your college expenses by choosing a school that gives you good financial aid or by attending community college and then transferring to your dream university.
