🔏 5 keys to private student loans
It’s not our ideal scenario. We’re very supportive of sticking to your budget when it comes to school selection and not borrowing more than our rule of thumb[1]. But the maximum undergraduate federal borrowing limit of $27,000[2] can be a drop in the bucket with prices of attendance skyrocketing to $90,000+ annually[3].
For families in need of borrowing additionally, private student loans can be a solid option with generally more competitive interest rates than Federal Parent PLUS loans. Here we’ll spill some new ideas, here’s 5 keys to borrowing with private student loans:
- These loans allow you to borrow up to the cost of attendance
- Unlike the Federal undergraduate borrower loan limits that vary from $5,500 - $7,500, private loans allow you to borrow up to the full cost of attendance (both tuition + room and board).
- It will likely require a cosigner.
- Where 18 year olds are unlikely to have a credit history, most lenders will require a cosigner such as a parent. The rate on your private student loan will vary depending on the credit score and income characteristics of the cosigner, so keep this in mind when selecting who will cosign on the loan.
- Private loans lack the flexibility of federal loans
- While federal loans allow for income-based repayment plans and forgiveness options post graduation, private loan provisions are up to the lender and are typically more rigid.
- It’s worth shopping around
- Some states like Massachusetts have state authority programs (MEFA) that may offer advantageous loan provisions to private companies. However, provisions and offers will vary by the lender.
- Know before you borrow
- A school that’s out of your price range should not be justified with funding via private federal loans. It’s extremely important that you know how much you’ll be borrowing before your child’s freshman year and what payback will look like for them upon graduation before signing.
Have questions about funding your child’s college via private loans? CLICK HERE to book a time to chat.
All the best,
Andrew Holmes, Certified College Planning Specialist™
Andrew@PlanWithFPS.com
617-630-4978
Financial Planning Solutions, LLC (FPS) is a Registered Investment Advisor. Financial Planning Solutions, LLC (FPS) provides this blog for informational and educational purposes only. Nothing in this blog should be considered investment, tax, or legal advice. FPS only renders personalized advice to each client. Information herein includes opinions and source information that is believed to be reliable. However, such information may not be independently verified by FPS. Please see important disclosures link at the bottom of this page.
[1] https://planwithfps.com/blog/how-much-is-too-much-in-student-loans
[2] https://studentaid.gov/understand-aid/types/loans/subsidized-unsubsidized