There are two types of student loans: public and private. Public student loans are the ones you become eligible for when you fill out the FAFSA. Those student loans offer the best interest rates and the most generous repayment terms.
When you have the option of taking out public or private student loans, you always want to take out public loans.
Unfortunately, public student loans may not fully cover your college expenses, especially if your parents are classified as middle or upper income. Therefore, you may need private loans to fill in the gap.
Before you take the plunge into private student loans, however, you should know exactly what you are getting into.
Like public student loans, private student loans cannot be discharged through bankruptcy. No matter what dire financial straits you find yourself in after graduation, those private student loans will stick with you.
In addition to that, you will have to pay a very high interest rate. In fact, the interest rates of private student loans are at credit card-like high levels — upward of 10%. That means that even if you pay your private student loans off on time, the total amount you will pay back is much higher than what you borrowed.
Like any kind of loan, you want to compare your options before applying. Investigate different private student loan providers and consider whether or not it would be a good idea to get a co-signer.
While private student loans have their place, you want to consider whether or not the rate of return on your particular program is worth burdening yourself with this debt over the long term.
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