Student Loans: a critical analysis.
trend seems to be changing as more and more numbers of students
are picking up private student loans in spite of being aware
of the fact that this will only get them deeper into debt. While
some students choose private student loans as an alternative
to Federal aid, there is a wiser lot which uses private loans
only to bridge the gap between the educational cost and the
The cost of education
has increased by more than 40 percent over the last twelve years
but sadly the Federal loan limits have not increased at all
over the last ten years. This is one reason that the private
educational loans have seen an increase of nearly 45 percent
in case of undergraduates and more than 50 percent in case of
graduates in the last four to five years. The total amount of
borrowings by students from private lenders has increased five
times since 1994 and is currently around $45 billion.
The total amount of money taken up by students as private
student loans is much above the total amount of funds granted
under the Federal student educational programs. While the amount
of money taken up as private student loans has increased but
the number of students preferring such loans is not very high.
Private student loans are rarely used by undergraduates and
are normally used by graduate and professional students. There
are fewer students who are taking up private student loans but
the average amount of loan that they generally take is very
It is quite likely that
if the limits of Federal educational loans are increased a major
portion of the student population currently using private student
loans will easily shift on to using Federal loan options only.
One of the major drawbacks of private student loans is that
as soon as the loan gets disbursed, interest starts accumulating
on the monthly payments and this goes on till the time the student
is in school. By the time the student finishes school his loan
amount would have grown out of proportion because of this.
Private student loans are quite often advocated by financial
aid experts as being a more
logical alternative to Federal student aid to continue with
higher education. Indeed, private school student loans are a
good way to cover up the gap between the Federal aid and the
total cost of education. However, using private
student loans to substitute for Federal aid is in no way
beneficial and as opposed to what the financial aid experts
say the private student loans should only be used to supplement
the Federal aid.
Private student loans do have their own advantages such as
1. Bigger amount of loans
can be approved within a few minutes,
2. There are no deadlines
for submission of application,
3. These loans are not
based on needs rather on the credit taking ability of the borrower.
Private student loans
can be picked up any time during the education that is when
you are enrolling for the course or even when you are already
halfway through the course.
The financial aid experts often lay out a lot of benefits of
taking private student loans; let us take a look at some of
these claims and the actual truth.
Private student loans
come with fixed rates of interest is one of the claims made
to persuade the borrowers, however this is not very true because
the interest rates for private student loans are fixed at prime
rates. And prime rates keep on fluctuating on a quarterly basis
based on London Interbank offered rates; apart from this a margin
is imposed by the lender. Another claim is that private student
loans have more flexibility in terms of the payment options
and thus come out as a more affordable solution as compared
to Federal student loans. There is some amount of flexibility
regarding the time within which repayment must begin; but what
they dont tell you, is that the repayment term for a private
loan is capped at fifteen years which is nearly half of the
repayment time which is allowed for Federal student loans. And
if you believe that this really is not significant consider
the fact that by getting your Federal loan term extended through
consolidation the monthly payments can be brought down by up
to 50 percent.
When a student chooses
a private student loan instead of the Federal student loan he
also has to forgo some of the very vital benefits which are
associated only with Federal loans. For instance under the Federal
student loan program there is a provision under which if a student
becomes disabled or dies, the amount gets forgiven and no repayment
is required. However, with a private student loan there is no
such relaxation and whatever may happen the repayments will
have to be made under all circumstances.
Complete loan forgiveness
is only provided under the Federal student loan programs in
cases such as disablement and unemployment when the payment
may actually be unaffordable for the borrower. This benefit
is completely lost when opting for a private student loan, as
the liability to pay back the debt never ceases.
So, while the private student
loans advocates may make high claims it is still better
to use private student loans only to fill up the gap between
the financial aid and the total expenses related to education.
That boils down to a simple fact that private student loans
can only be used to supplement Federal aid and never to substitute
1. auto loan rates
There is no denying that the best car loan rates can be found online from a number of financial companies. As a ...
2. boat loans
Buying a boat is major financial decision that a person takes. Buying a boat is not an easy task. There are many...
3. owner financing
A Home in Chennai PositionTaking a home loan at this time is easy. But to find a proper home at the right pric...