The Harsh Reality of Private Student Loan Debt

Getting the financing you need to attend college isn’t as simple as it used to be.

Back even forty years ago, going to college only cost a small fraction of what it costs today, and most students didn’t even have to worry about taking out loans to pay for college.

This has of course changed in today’s modern world, and it is now commonplace for undergraduate students to take out a whole litany of student loans to pay for their tuition, living expenses, and other educational expenses.

Two Categories of Student Loans

Student loans fall into one of two categories—federal student loans, or private student loans.

Federal student loans are:

• Guaranteed by the government
• Have very low interest rates
• Come with flexible repayment terms
• Based on financial need

Private student loans are:

• Made by independent private lenders
• Have higher interest rates than federal loans
• Fewer and less flexible repayment terms
• Based on credit

Due to the increasing costs of attending college, students have been turning more and more to private student loans when they cannot get enough federal student loan funding to pay for the entire cost of going to school.

And while this is a growing trend, the problem is that students perceive the presence of this private loan funding as the equivalent of getting a federal student loan, when in reality it costs more than federal aid, and is overall more risky when all is said and done.

Important Aspects of Private Student Loan Funding

Private student loans, also known as alternative student loans, or fast student loans, have increasingly become more prevalent over the past ten to twenty years, and the entire private student loan industry has been thriving as students continue to take out these credit-based loan products to fill in the gaps that conventional federal loans and other kinds of financial aid cannot cover.

What most students have failed to realize is that while most private college loans are considered to be student loans, they are in reality more akin to consumer loan and credit products, and not conventional types of Federal Student Aid like the Stafford Loan.

Alternative student loans often come with high fees and points, as well as high interest rates that are often adjustable.

They cannot be discharged via bankruptcy the majority of the time, and the flexibility of lenders when it comes time to payback the loan is typically minimal, and nowhere near the kind of leniency a student might expect with a federal student loan.

Harsh Reality

Naive students keep on haphazardly taking out these kinds of loans, not realizing that these are serious loan products that will come back and bite them if they aren’t careful.

The end result is a harsh graduation present that is not anything like the new car, or cash prize that most graduating seniors typically might expect, and is rather a debt that is going to most likely be with the student for the better proportion of their lifespan.

In the final analysis a student borrower must use extreme caution when looking to these kinds of alternative student loans, as they sometimes can do more harm than good.