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Opting for Private Loans |
College Loan Consolidation, Federal Loan Consolidation, Private Loan Consolidation, Student Loan Consolidation

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Opting for Private Loans
By Nihit Aurora
If you discover that there is a gap between the actual cost of your education and the amount of money that you are eligible to receive from the federal government to fund your education, you can borrow private student loans to fill the gap.

Private lenders do not depend on the federal government to provide their loans. Some private lenders offer more-flexible options for deferred repayments than federal loans do. Usually, however, the cost of private education loans is higher than that of federal loans. Generally, private lenders offer variable interest rates, and unlike federal loans, some private lenders do not offer forbearance and repayment options. Therefore, you should inquire about your eligibility for federal loans before you opt for private loans.

Many private lenders consult your FICO credit score, developed by the Fair Isaac Corporation, before approving you for a loan. This credit score gives the lender a fair indication of how risky it is to lend to you. Generally, FICO scores fall between 300 and 850. Lenders usually consider only those students whose FICO credit scores exceed 650. Individuals with lesser credit scores are usually ineligible for private loans. Lenders base their interest rates on market indices such as the LIBOR index, which reveals how much it costs the lender to borrow money from the financial market.

If you wish to apply for a private loan, you should consider including a cosigner on your application. This is a valid practice even if you qualify for the private educational loan on your own. Usually, private loan lenders charge slightly lower interest rates if applications include cosigners, as such loans pose lower risks than individual applications. Furthermore, if your cosigner has a higher credit score, the lender will consider the higher credit score when assessing interest rates and other parameters.

Once the lender disburses the private loan, you can use it to pay your Expected Family Contribution (EFC), which is your family's contribution to the cost of attending college. However, this may reduce the amount of aid from other resources for which you are eligible. If the loan amount is more than the cost of attendance, most colleges consider this an additional resource. According to federal legislation, this can reduce the need-based aid that most colleges provide.

Numerous private loan providers operate in the United States. As always, do thorough research to find out if they are legitimate before you borrow.


Article Title : Opting for Private Loans
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Education is one of the most basic right of any human, but with the increase in prices and the costs involved in education this has made these rights turn into a privilege which very few can enjoy. Any normal person today in the whole of United States has to take an education loan at one point of time to pay for their education fees.

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Schools Will No Longer Receive Paper FAFSA Forms
(September 20, 2007)

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