Jump ahead to May. You’re all set for college. You got in to your dream school, you filled out your FAFSA long ago, and now you’re ready to get your financing in order. Except that your tuition and room and board and other costs add up to more than the amount of federal loans you are eligible for… Wait, what?!
There are maximum limits placed on federal loans (generally, $5,500 as a freshman, $6,500 as a sophomore, and $7,500 as a junior and senior). So what are you supposed to do to cover the rest of your costs? Enter private loans.
Private loans are student loans but the lender is a bank (or credit union or a student loan provider company*) rather than the government. They are based on your credit rating so you will usually need an adult co-borrower. The downside to private loans is that the interest rate is usually higher than on federal loans. I understand that it’s hard to even conceptualize the difference in interest rates right now, but believe me, once you start paying back your loans, it will matter. Read the rest of this entry »