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What Private Loan to Use?

Started by gmartin1215, September 13, 2021, 01:05:45 pm

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gmartin1215

Hi,

This is a general question about private student loan options and I thought there may be some tips here. I have a freshman who started classes this year. We are looking into getting a no initiation cost private loan and are wondering what is the common or best-rated vendor that students have used for this type of loan, and which ones to avoid or have been problematic.

I hope you can help.

TheCollegeInvestor

We have our list of the best private student loan lenders here. With that in mind, they're all extremely similar. You're not going to see any outliers in terms of being problematic - it's a loan and they're a lender.

With that in mind, you should rarely (if ever) get a private student loan. They should be the last resort after all Federal loans and other financial aid are exhausted. And even at that point, you need to really assess the ROI (return on investment) of the cost of college. Just like any other type of debt, if you spend too much, you're going to suffer financially for a lifetime (or at least a few decades).

gmartin1215

Quote from: TheCollegeInvestor on September 14, 2021, 10:04:08 amWe have our list of the best private student loan lenders here. With that in mind, they're all extremely similar. You're not going to see any outliers in terms of being problematic - it's a loan and they're a lender.

With that in mind, you should rarely (if ever) get a private student loan. They should be the last resort after all Federal loans and other financial aid are exhausted. And even at that point, you need to really assess the ROI (return on investment) of the cost of college. Just like any other type of debt, if you spend too much, you're going to suffer financially for a lifetime (or at least a few decades).

Thanks!
We are considering a no initiation cost private loan because the federal Parent Plus loan has a 5% initiation fee.
We are still new to this game. Why would we pay a 5% initiation fee for a federal loan when there are no initiation cost private loans available?

TheCollegeInvestor

Well yikes. There's other concerns here - not the fee at all.

Federal loans are far superior to private loans because you get a ton of benefits. With Parent PLUS Loans, you can still get some access to income-driven repayment, loan forgiveness plans, and if you had one over the last 18 months, your loan would have been completely paused at 0% interest and $0 payments. You will never get that with a private loan.

But... we never recommend Parent PLUS Loans. Why? It's the parent's loan - the child/student has no responsibility to the debt. This is bad news a lot of the time. Read our article on it here: Parent PLUS Loans - What To Know.

So, if you're down to just private vs. Parent PLUS, then yes, private may be better. But I think the actual conversation needs to be on total cost of college - if you're spending $80,000 or more in total, the chance of a positive ROI outcome on your future salary is low unless you're going into medicine.

With that in mind, the tougher conversation needs to be about transferring to a better school to achieve a better outcome.