Consolidating private loans companies
But that doesn’t entirely explain the growth in private loans. Many lenders advertise private loans on television and over the Internet. Last month, New York Attorney General Andrew Cuomo expanded his investigation of the student-loan industry to include lenders and companies that use direct-marketing campaigns to promote their loans.An analysis by the American Council on Education found that one in five undergraduates with private loans didn’t first take full advantage of federal loans. (Major private lenders say they encourage borrowers to take advantage of federal loans before taking out any private loans.) In addition, recent cuts in government subsidies have made federal loans less profitable for lenders.Federal student loans offer borrowers protections and alternative repayment options that private loans may not, such as income-based repayment and forgiveness programs.Federal student loans also have flat interest rates set by Congress, while the interest rate on a private student loan depends on your or your co-signer’s credit.
A fixed rate stays the same throughout the life of a loan.
USA Today’s Money section has a good article discussing why you should exhaust your Federal student loan opportunities before looking at private loans. The amount of federal money that students can borrow is limited, and those limits haven’t kept up with increases in college costs.
As a result, some students who attend high-cost schools rely on private loans to pay for expenses not covered by their federal loans. Public Interest Research Group, a consumer advocacy group, has charged that some of these ads are misleading and entice borrowers to take out unnecessarily high-risk, high-cost loans.
Without a credit score of at least 690, you’ll likely pay a higher interest rate for a private loan than you would for a federal loan.
Learn more: The differences between private and federal loans Compare offers from multiple lenders including banks, credit unions and online lenders to find the lowest interest rate.