Need for private student loans
In most of the cases, the terms and conditions for federal student loans are so strict that it becomes difficult to avail them. Even when availed these loans do not completely fulfill the financial needs of the student. With the growing cost of all educational programs, tuition fee, enrollment fee and also other needs like boarding, food and other expenses thinking to get higher education has become a dream for most of the students. Here the private lenders come to play a big role.
Advantages of private student loans
1. These loans are quickly approved and the students who can submit a proof of their financial strength and good credit history can also avail the opportunity to get their loans approved instantly. In normal cases it takes around five working days to get the loans approved.
The same is not the case with federal loans. As these loans are regulated by federal terms and conditions so the paper work takes time and approval of loans too take time.
2. The private student’s loan is disbursed directly into the accounts of the borrower. This helps the students to plan is course and other expenses according to the loan amount.
The federal loan on the other hand is disbursed not to the student but to the school or college authority with which the student is enrolled.
3. The educational loan that is made available by the private student loan is usually higher in amount than that offered by the federal loans. There is a cap to the amount of loan that can be availed from the federal institute.
4. The amount of loan that is disbursed in private student’s loans is exactly the same as the amount that gets sanctioned according to the need of the applicant. In case of federal students loan the amount of money disbursed is always less than the actual loan sanctioned.
5. Wider use- The private students loans can be used for a multiple of purposes like laptops, books etc. Federal rules are very strict and can be only used for paying the fees of the classes for a particular academic year.
6. Processing of the loan takes much lesser time than that of federal private loans.
Disadvantages of the private student loan
1. Private student’s loan demands that the borrowers should have a good credit history. People who are creditworthy with a very good financial backing will be eligible for private loans. In federal students loan credit check is not required and anyone can apply for loans except for the specific need based loans.
2. Private student’s loan attracts higher interest rates and processing fees. While in case of federal loans the interest rates are very low and remain fixed in private student’s loan the interest rates vary with the market’s performance.
3. Private student loans have greater chances of being misused as they do not require any documents proving the enrolment of the student and are directly dispersed to the student and not the institute. Federal loans on the other hand are disbursed directly to the educational organization and therefore have less chances of misuse.