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At first glance, private student loans might appear to have lower interest rates than federal student loans – but those lowest advertised rates are only for loan applicants who have excellent credit scores.
The average college student won’t qualify for these rates or will be forced to sign with a cosigner.
If you’ve exhausted all these options, it may be time to consider a student loan.
If you want to get a student loan, you generally can’t go down to your local bank and take out a loan to pay for college.
Both are considered unsecured loans – this means they’re riskier for the banks than secured loans, which have an asset or collateral behind them. The only asset behind an unsecured student loan is your future earning potential: your brain, essentially.
For this reason, private student loans can have very high interest rates.
Private lenders have no obligation to offer forbearance periods or to defer payments due to hardship.Most federal student loans also don’t require credit checks to qualify.If you graduate and work in public service – i.e., for the government or a qualifying nonprofit – the federal government also offers loan forgiveness options.Private Student Loans As a general rule, don’t consider getting a private student loan until you’ve maximized your federal student loan options.Private student loans are similar to credit card loans.
Federal loans can also be subsidized, meaning that the government pays the interest on the loan while you’re in school and up through the first six months after you graduate.