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Beware of Private Student Loans

While many students look forward to college and graduate school, albeit, graduating school, they often miscalculate or are just oblivious to what could become an overwhelming accumulation of student loan debt.

Some students are lucky that their grades and SAT scores allow them the privilege of gaining scholarships; however, even these students become subjected to paying back the loans that were needed to compensate for the part of the tuition that the scholarships did not provide for.

Nancy, an undergrad in New York’s SUNY Binghamton University has received scholarships, but there was still a whopping $22,000 that she had to apply for and will have to pay back upon graduation. Although this is somewhat typical for many students and some leave college owing $100,000 or more. Many times, students have to take mediocre jobs during school time in order to cover everyday expenses as federal loans do not always cover everything.

Enter Private Loans

This excerpt form talkconfidential.com portrays a scenario that is typical of what many college students are faced with.  “… they’re not giving me much money.” “… Although I have many scholarships lined up to apply for and have applied to many others, should I go forth with applying for private student loans or should I wait until I receive word on the results of the scholarships?” “… it looks as though with tuition, fees, personal expenses, etc. it will cost about $45,000 for the next academic year.”

Why Do Students Refer to Private Loans?

It is common for many students to accept the federal financial aid packages offered to them, but it is usually not enough to cover all expenses. If they take on private loans, they often don’t realize that these loans are more costly and have contingencies in the contract that is designed to benefit the lender should the student default. Parents are usually not privy to these contingencies or do not attempt to review the contract thoroughly before they co-sign. Statistics show that roughly 90 percent of private loans have co-signers. Needless to say, the co-signers are fully liable should the student default.

The result for some students that default is that the private lenders will start calling the co-signers. Usually it is the parents, but sometimes they are relatives or friends that now have to cover the thousands of dollars the student has accumulated and cannot pay. Dropping out of college and settling for a lower paying job is one reason students get caught in debt, but the signers of the loan still owe this money. This can lead to financial distress within the family and they are friends who cosigned, it could lead to legal action and in some circumstances, bankruptcy.

What is a College Student to Do?

The first step would be for the student to consult with a college financial advisor. Then discuss with his/her parents. Next would be to obtain as comprehensive as possible, the amount of money that will be needed for all expenses when the student attends the college. That includes tuition, room and board and daily expenses.

Once all paperwork is in order, the student, along with his/her parents should consult with a financial expert who is thoroughly versed in college tuition and loans and pursue the suggested course of action. A student loan financial expert can help relieve a lot of stressful worries and even more importantly, help the family save thousands of dollars in the long run.

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