Parents usually dread the time when their children are about to enter college. Understandably, young people that have a clear idea of what they want to become expect that their parents would help them pursue their dreams. But what if the parents cannot afford a college education?
In many countries, getting a college degree may only be possible for the rich. If you are poor, you might have to give up your ambition, find a job to help support your family or get married. However, in the USA, many young people can proceed to college because of student loans. You can seek financial assistance from the federal government or from private firms that offer student loans.
While most students turn to the federal government to get a student loan, some may also apply for a private student loan.
What Is A Private Student Loan and How Does It Work?
A private student loan is one that you can get from private lenders. You can apply for a student loan in banks, other lending companies, or credit unions and not by the government. Borrowing money to pay for your college education can be compared to getting a car loan or a house loan. When you fail to pay, the bank or company that lent you money can get back the car or the house.
With a private student loan, your future income serves as collateral. Private lenders understand how having a degree can boost your earning power. A lender can wait until you are earning an income and collect what you borrowed through salary deductions and other garnishments.
A pessimist might envision a life of difficulty even if he is already a teacher or an engineer because the most portion of his salary will go to the bank or company that lent him the money to go to college. However, an optimist would look forward to a better life after he has paid up all his debts.
Unlike debts that you got from borrowing money or using credit cards, you cannot get rid of your debt by declaring bankruptcy. As long as you are earning an income, you must make regular payments until you have paid up everything.
So, why do people still apply for a private student loan when they know that their finances might suffer when they are already earning an income?
Reasons Why People Opt for a Private Student Loan
Some would wonder why many parents and students still opt to take a private student loan despite the strict repayment scheme. Here are some reasons why some students and families even go for a private student loan.
- Taking a costly course
If you want to become a doctor or a lawyer, seeking a federal student loan will not work. The maximum amount that you can borrow from the federal government is around $20,000. With this amount, it will be impossible to pay for your tuition fees and other expenses that the course may entail.
However, when you take a private student loan, you can borrow up to $180,000 or more, which is the amount of money that you might need to become a doctor or a lawyer.
- Taking a private student loan is easy
When you or your parents have a high credit score, the banks and other lending companies will be willing to lend you money to the maximum. You may also find a cosigner that can absorb your debt if ever you cannot pay it back. Once your application is approved, you get the financing you need for your college degree.
- You can take a private student loan when you max out your federal student loan
One important reason for some people to get a private loan is to supplement their federal student loan, which is usually around $20,000 for students taking a four-year course. If you have used up your federal loan before graduating, you can apply for a private student loan to pay for your remaining years in school. Because you might be in the last year of your studies when you get short of cash, you can apply for a smaller loan, something that you can quickly pay back when you already have a job.
- You see that the return-of-investment is favorable to you
The first thing to ask yourself when thinking about a private student loan to augment your federal student loan is that will the additional cost be worth it? Private lenders will collect what you owe them once you start earning. Can you afford to pay your private student loan and your federal loan as well? If you think you can, then you can get a private student loan as well.
If you have a high credit score or someone to will serve as a cosigner, and you think that your expenses will be worth the cost of your education, taking a private student loan can be a hassle-free means of realizing your dream career.