Private student loans are marketed as a great alternative if the federal aid amount isn’t enough to cover your college tuition and other costs. Plus, there are many individual financial institutions on the market that offer private student loans. It’s big business and contributes to the massive trillion-dollar student loan debt that Americans are currently repaying.
But we say run. Avoid private student loans at all costs. Here’s why.
1. Private Student Loans are Predatory
Some private lenders engage in predatory behavior. They’ll partner with predatory for-profit colleges who try to lure you in with programs that will not repay the investments you’ve made to acquire the degree.
Private lenders will still lend you the tuition, even knowing that these programs aren’t legitimate. As such, operators of private student loans take advantage of the system while entrapping their borrowers in a cycle of bad debt.
2. There’s Little to No Flexibility in Loan Repayment
Private student loans offer little flexibility when it comes to repayment. For example, you’ll need to start repaying the loan before you finish your college education. If you are facing financial troubles, there are no payment holidays, restructuring, income-based repayment plans, etc. There’s also less forbearance time.
3. You’re Paying Wall Street Interest Payments
Private institutions charge much higher interest rates for student loans than federal programs. However, they have less forgiveness programs built in, or they have no graduated payments.
You often won’t have the option of an income-driven repayment plan when you have a private student loan. So, you’re stuck with paying a high-interest rate student loan debt having been trapped into this process.
There is a reason why so many government and private officials are speaking up for consumer protection in the face of private student loans. If you can – and we recommend that you really do – avoid taking out private student loans.
Your financial health and the rest of your life depends on you not doing it.