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Reducing the Consequences of Private Student Loans

Jun 1, 2009 Jennifer Williamson, Distance Columnist | 0 Comments

It’s been reported that banks are raising their standards for student loans—and giving out less private loan money in education as well as in mortgages and other loans. But Federal loans, grants and scholarships are getting harder to come by as well—and they aren’t growing to match the rate of tuition inflation.

Maybe that’s why the Project on Student Loan Dept reports that despite trends indicating banks are scaling back their lending across the board, students are relying more than ever on private loans. According to the study, private student loan borrowing increased from 14% in 2003-2004 to 43% in 2008 among students at for-profit colleges; at nonprofits, rates increased from 5% in 2003-2004 to 14% last year.

And that’s bad for students and parents. Private student loans carry high interest rates and payment terms that are often far from optimal. As a student, your best bet for minimizing your loan burden after college—aside from attending a lower-cost community college or online university - is to get as much Federal aid, grants and scholarships as you can. Here are a few ways you can reduce your debt burden when you get out of college.

Fill out the FAFSA

The study reports that surprisingly few people fill out the Free Application for Federal Student Aid. That’s a mistake. The application allows you to be considered for Federal Stafford, Plus and Perkins loans, all of which have fixed low interest rates and much better borrowing terms than you’d get with a private lender. With subsidized Federal loans, interest doesn’t start accumulating until after you’ve graduated college. Depending on your need, you may also be eligible for Federal grant aid that you don’t have to pay back.

Talk to your school

Many students are more aware of debt now than they were in the past, and some schools are responding. Some school financial aid offices are working to help students stay away from private debt by offering special aid packages designed for families facing financial hardship. They may be able to help you with extra grants, loans delivered directly through the school, or even a work-study job that allows you to apply your earnings toward your tuition. These are always worth looking into.

Get a job

Even if you’re not eligible for your school’s work-study program, you can still get a head start on paying down your debt by getting a job. Work part-time at a local bookstore, restaurant or coffee shop and apply your earnings toward your tuition. The sooner you can get started paying down your debt, the lower your burden will be when you graduate—and the more freedom you’ll have as a new graduate.

Even if you’re attending a school with high tuition, it’s likely you’re taking out more in private loans than you need to. It’s never to early to think about how you can reduce your debt burden when you graduate—starting with your reliance on private loans. Talk to your school, fill out the FAFSA, and look for opportunities to apply for grants and low-interest Federal loans. In addition, get started early paying down your debt with a job, either on campus or off. If you do, you’ll have a much easier life when you graduate college.


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