Pros and Cons of Private Student Loans

Before applying for a student loan, consider the pros and cons of private student loans. Read below for an in-depth look at the reasons to consider taking out a private student loan.

Pros

Private student loans provide supplemental financing when the student has reached the Federal Stafford loan limits
Private student loans have higher loan limits than federal student loans
Private student loans can be less expensive than Federal Parent PLUS loans if the borrower (and cosigner, if any) have excellent credit
Private student loans are an option for borrowers who have failed to maintain satisfactory academic progress and who have lost eligibility for federal aid
Some private student loans are available to borrowers who have dropped below half-time enrollment
Private student loans can be available to students whose parents are unwilling or unable to borrow, but where someone else is willing to cosign the loans
Some private student loans are available to international students who have a creditworthy U.S. citizen cosigner
Private student loans are available to finance previous school charges, unlike federal student loans, which are limited to $200 in previous school charges
Some lenders offer private student loans to pay for expenses after graduation, such as bar study loans after law school and residency/relocation loans after medical or dental school
Private student loans provide a quicker application process because they do not require the student to file the Free Application for Federal Student Aid (FAFSA)
Borrowers can obtain a private student loan with a lower interest rate by applying with a creditworthy cosigner with excellent credit
Interest on private student loans may be tax deductible through the Student Loan Interest Deduction

Cons

Needing to borrow from a private student loan or a Federal Parent PLUS loan can be a sign of over-borrowing
Most private student loans do not offer income-driven repayment plans
Private student loans do not qualify for teacher loan forgiveness or public service loan forgiveness
Private student loans have limited options for financial relief when a borrower experiences financial difficulty
Deferments and forbearances are limited to one year in total duration on private student loans, compared with three years for federal student loans
Some private student loans offer death and disability discharges similar to federal student loans, but some do not
Most private student loans require a creditworthy cosigner, with more than 90% of private student loans to undergraduate students and more than 75% of private student loans to graduate students made with a creditworthy cosigner
Although some private student loans have cosigner release options, less than one percent of private student loan borrowers qualify for a cosigner release
Qualified education loans, including private student loans, are almost impossible to discharge in bankruptcy
Eligibility for a private student loan and the cost of the loan depend on the borrower’s (and cosigner’s) credit scores, debt-to-income ratios, annual income and employment history
Some private student loans offer more discounts than federal student loans, but the borrower might have to make payments during the in-school and grace periods to qualify for a lower interest rate
Private student loans offer fewer repayment plans than federal student loans
Private student loans are less available to low-income students, with only five percent of low-income students receiving private student loans, compared to eight percent of high-income students