Q: Why are private student loans more expensive than federal student loans?
A: The government does not set the interest rates, loan limits, terms, and/or conditions of private student loans, banks and lenders do. It is because of this fact that private student loans typically carry higher, variable interest rates, and do not offer as many repayment options compared to federal student loans.
The interest rates and fees of private student loans are based on your credit history or a co-signer’s credit history, which means that students with bad credit histories will most likely receive more expensive private student loans.
If you obtain a private student loan, you will NOT be eligible for the same types of discharge, repayment, deferment and forbearance options available for federal student loans. So if you do need to obtain a private student loan, it is important that you first, make sure you have exhausted ALL of your federal financial aid options (as well as scholarships and grants), and that you read your private student loan contract very carefully to learn about your private loan’s terms, conditions, benefits, rates, fees, and penalties.
To learn all about federal student loans for college, please visit our Federal Student Loans section. To learn all about private student loans for college, please visit our Private Student Loans section.
TheStudentLoanShark:
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Tags: applying student loans college, federal student loans, Private student loans, student loans
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