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Are private student loans worth it?

In some cases, a private student loan may be better than a federal one.

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With a new academic year on the horizon comes a new set of costs of attendance. But it is Federal or private student loans Good for you? While federal loans come with many benefits, there are also some unique benefits of private student loans. Below we’ll break down the four main benefits of going the private student loan route.

Check out your student loan options here now to see what you qualify for

Are private student loans worth it?

Here are four reasons why a private student loan might be worth it to you.

1. Potential to borrow more

The amount you can borrow for college is determined by the school you plan to attend. However, you can exceed the limit. Federal student loans are subject to both annual and aggregate limits.

Federal Annual Limit: Ranges from $5,500 to $20,500, depending on your year in college, the degree you’re pursuing, and whether you’re listed as a dependent on someone else’s tax return. Federal aggregate limits: Currently set at $31,000 for dependents, $57,000 for graduate independent students, and $138,500 for independent graduate and professional students.

With private student loans, the limits (or lack thereof) vary by lender, but many cover up to the full cost of attendance. As a result, if your college expenses exceed the federal limit, you may want to switch to a private loan.

“Private student loans can provide additional financial assistance to bridge the gap between your college costs and any other financial aid you receive,” says Jason Skinrud, loan officer at Supreme Lending.

Explore your personal student loan options here to learn more.

2. Well-qualified borrowers are rewarded

When you apply for federal student loans, the government collects information about your family’s circumstances to calculate your Expected Family Contribution (EFC).

The more your family is expected to contribute toward your college costs, the less federal aid you’ll qualify for (such as Pell Grants, subsidized direct loans, federal work study, etc.). That said, even with a high EFC, you can still qualify for an unsubsidized federal loan.

Eligibility for personal loans Based on the creditworthiness and income of the borrower and anyone signing. As a result those whose income is higher and better Credit score Get the lowest interest rate, maximum loan amount and best terms. If you have a high EFC, you can get more competitive rates and terms from private lenders.

3. They are not protected by federal tax refunds or benefits

If something goes wrong and you default on your student loans, private lenders can send your loan account to collection. They can sue you to get a court order that allows them to garnish your wages and/or put a lien on your assets.

While not ideal, the federal government has more power and reach. It doesn’t require a court order to garnish your wages — it automatically allows up to 15% of a person’s disposable earnings to be garnished when they default on a non-tax federal loan.

Federal tax refunds and federal benefit payments may also be withheld and applied toward the outstanding balance. Further, your debt holder may take you to court resulting in collection fees, court costs and attorney’s fees.

4. You can shop nearby

Unlike federal student loans offered exclusively through the federal government, private student loans are available through a variety of private student loan lenders. Loan offers vary in terms of loan amount, interest rate, fees, eligibility requirements, repayment terms, hardship programs, discounts, discharge options and more.

Instead of just one option, you can shop around and compare rates and terms to find the best fit. Shop now for private student loan lenders here or through the table below.

When is a federal loan worth it?

Federal loans are often the solution for college students – and for good reason.

They come with competitive fixed interest rates, flexible eligibility requirements, loan forgiveness programs, forbearance and deferment options, and income-based repayment plans.

You may find them better if:

You/your cosigner are not eligible for private student loans at competitive rates. You are eligible for a loan forgiveness program. Federal loans will cover all of your higher education expenses. You don’t mind borrowing from the federal government. You want an income-based repayment plan.

The Bottom Line of Private Student Loans

When your credit limit requires more than what federal loans offer, Private student loans can fill in the gaps. They can be helpful if you choose to borrow from an entity other than the federal government and qualify for competitive rates.

A good place to start is with submissions FAFSA application Learn about financial aid available to you. Then, shop around with private lenders to find out what they have to offer. With all your options on the table, you can decide whether a federal loan, a private loan or a combination is best.

MoneyWatch: Managing Your Money

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