Many students need to take out loans to be able to afford to go to college, but taking out private loans is not always the best idea.
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When it comes to taking out loans, the process can be tedious, and the most important thing is that you find a loan that works with you. Private loans can seem reasonable, but there are several reasons why you should try to avoid them.

The rates can change

Compared to a federal loan that has preset interest rates, private-loan interest rates tend to climb over time. It can be incredibly misleading because interest rates for private loans are usually advertised as much lower than that of federal loans, making private loans more attractive. Interest rates for variable private loans can easily double or even triple over the time it will take to pay it back, and it can catch many people off guard.

While it can be difficult to deal with a variable interest rate on your own, you’ll need to worry about how your private loan will affect your cosigner.

Cosigner’s credit score

Many undergraduate students don’t have a lengthy credit history, so private loans tend to require a cosigner in order to take out the loan. In most cases, the cosigner will be a parent, meaning they will become responsible to pay the loan if the student is unable to.

Cosigning on a private loan can negatively impact not only the student but also the cosigner. If you are unprepared to make large monthly payments, you can face late fees, fines and even default. Missing payments can ruin you and your cosigner’s credit score.  

Not being able to make your monthly payment is not so bad when you have borrower protections that federal loans provide. But when you take out a private loan, those protections are generally nonexistent.

Lack of protections

While federal loans have borrower protections, private loans do not. This can cause problems if you run into financial trouble because you will still have to make your payments.

Private loans can’t be dismissed because of bankruptcy. Federal loans have the same policy, but they are usually able to temporarily postpone or lower your monthly payments if you are struggling financially. But without the ability to pay your private loan, you could face wage garnishments or even lawsuits.

Another downside to private loans is that, unlike federal loans, you need to start making payments while you’re still in school. Being in school and trying to pay off a private loan with little to no income would not be easy.


Private loans are not impossible to manage, just more difficult. They provide fewer borrower protections, and make it more difficult to keep up with payments because of variable interest rates. Private student loans should be a last resort, as students are more likely to have a better experience with federal loans.

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Posted 04.12.2017 - 07:12 pm EDT