Private Student Loans

The amount of students utilizing private student loans to pay for college expenses is on the rise. In fact, in the past 10 years private student loan usage has gone from practically non-existent to matching federal student loan use by 25 percent. There are several reasons why the use of private loans is one the rise – interest rates is not one of them.

By nature, interest rates for private student loans are higher than any loan offered by the U.S. Department of Education. That is not to say you can’t get a good deal on a private student loan. However, because the Department of Education has school loan programs designed for the advancement of individuals seeking college degrees, they are able to offer interest rates that are far below competitive.

With that said, private student loans are still increasingly popular and a much needed asset to the student loan industry. Private student loan rates currently range from the prime rate (which as of December 2007 was 7.25) to 15 percent and higher.

Because private student loans are granted based on a borrower’s credit, interest rates can be competitive. Someone with excellent credit has a strong possibility of securing a private loan at prime rate. As the credit score goes down, private student loan rates increase. Borrowers who don’t have strong credit, which can sometimes be the case when you are directly out of high school with very little credit history under your belt, a co-signer can be utilized. By having a co-signer, with excellent credit, sign with the primary borrower, the private lender can usually offer a more attractive interest rate.

Even at a higher interest rate, private student loan rates typically beat out student credit card rates that can easily rise into the range of 20 percent. Even if all a borrower needs is money for textbooks, the private loan may be the way to go because of a more competitive rate.

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