What is a Personal Student Loan?
A personal student loan is a loan that is used for educational purposes. In contrast to a federal loan, which typically has fixed low interest rates, a personal student loan is a type of private loan that may have higher interest rates. Many people find they need additional loans to pay for their education, however, and a personal or private student loan can be a great way to do that.
A personal student loan may be obtained from bank or from a company that specializes in student loans; there are many available. Some are need-based, and may offer lower interest rates based on that information, but most personal student loans are simply available to those who are currently enrolled in school, without many other requirements. The loans may be used for tuition, room and board, or even textbooks, and are available for both undergraduate and graduate students.
Typically, a personal student loan will offer a number of benefits over a regular personal loan. First, and most importantly, payments on student loans can generally be deferred until after graduation, and sometimes even for a year or two after that. Keep in mind that the interest will continue to accrue on these loans even while they are in deferment, so it is a good idea to begin making payments on the loan as soon as possible. Second, interest paid on student loans can typically be deducted on one's income taxes.
Interest rates on a personal student loan can be very high, however. This depends on a number of factors, but is often based on one's credit score. Because most students who are taking out student loans do not have a long credit history, it is sometimes beneficial to have a parent co-sign the loan. This can make the interest rate much lower than it would otherwise be.
Some people also use a personal student loan to consolidate other student loans. This can also be a good way to get a lower interest rate; however, be sure not to consolidate any federal loans with a low, fixed interest rate unless the interest rate on the consolidation loan is also a low, fixed rate. In general, it is best to explore all avenues of federal funding first, before applying for a private student loan; this can include both subsidized and unsubsidized loans, as well as grants that do not need to be paid back, and can be one of the best ways to fund a college education.
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