Private student loans

Private student loans come in second to federal student loans, but what are the real differences? Should you take out private student loans? We answer all your questions and help you decide of private student loans are for you!

Student loan debt is a topic that can be tricky to navigate. Like any loan, the expectation is that the borrower will regularly make payments on time. But, when you’re fresh out of college and job prospects are slim, this can be easier said than done.

It's important that you understand exactly what you're getting into when it comes to your student loans, and in this post we are going to tackle private loans.

Secured vs. unsecured loans

There are two types of consumer debt: secured and unsecured.

Secured debt can be backed when a person becomes liable for the debt or by the actual item itself, like a home. Unsecured debt refers to things like credit cards, personal loans, and medical bills. These types of loans are typically not backed by collateral or a guarantor. Lenders are trusting that the consumer will pay.

Even though some types of student loans can fall into the unsecured category, private loans are often require either collateral, or a guarantor, or sometimes both.

Student loans vs. other consumer debt

Borrowers should consider a few key differences between student loans and other consumer debt.

For example, filing for bankruptcy - if often relieves you from other consumer debts - may not relieve your student loan debt. The requirements for discharging student debt through bankruptcy are quite strict.
Due to the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, borrowers are required to prove that undue hardship was likely to continue and demonstrate that every effort to repay the loan had been made.

Federal student loans are guaranteed differently than other types of debt. Since federal student loans are backed by the government they have no statute of limitations, they are processed by the U.S. Department of Education.

Even though private student loans are backed by private institutions, they are still protected by the same bankruptcy act. There is a statute of limitations on private loans - set by the specific State - but trying to outrun the clock does not guarantee that it will disappear. The statute of limitations is just the time limit in which a creditor can sue the consumer for nonpayment. That does not mean the record of debt will vanish.

An advantage to federal loans is that they are able to offer various plans for repayment that can be adapted as circumstances change. The standard term for repayment of a federal government student loan is ten years but there are also graduated, extended, and income-driven options including forgiveness programs.

What not to do

Never try to avoid repaying student loans. If a borrower becomes overwhelmed by their financial obligations they should communicate with loan services to keep them informed of the situation. A borrower should always do their best to make payments because student loan debt can cause problems 30 and 40 years later if it goes unpaid.

Frequently asked questions

What are private student loans?

Private loans are financial vehicles offered by private banks and institutions to help students and families cover the cost of education. Unlike fed student loans, private student loans vary greatly based on a borrowers financial position. For this reason, we strongly urge you to compare private student loans to find the right loan for your unique

Can I get private student loans with bad credit?

Unlike federal student loans, securing private student loans with bad credit may be a challenge. That said, all hope is not lost. If you have bad credit but can add a cosigner to your loan that has good credit, you may be in luck and able to borrow after all.

How do I apply to private student loan consolidation?

Student loan consolidation sometimes called student loan refinancing is a process by which you seek out a new loan, usually after graduating, to consolidate disparate loans you may have taken out to pay for school. People most often refinance their loans to lower monthly payments, change repayment terms, or lower the overall cost of their loan. Just like shopping for student loans, we urge you to compare your options and do your homework.

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