Student Loans

Student loans are generally categorized in to following categories:

  1. Private Loans
  2. Federal Loans

Private Loans


The private loans are financed to students by banks or financial institutions and not by any kind of federal assistance. Unlike the loans which are profoundly advertised showing lots of benefits, these loans do not have delay payment options. Though this is the best option for students who have taken federal loans and have exhausted the limit of borrowing more of federal loans. These being funded by private sectors and completely unsecured, have higher fees and processing charges along with lesser flexibility in terms of payment.

Generally, private loans companies offers higher loans as compared to federal along with the benefits of various federal repayment plans. These are accompanied with an added benefit of a 6-12 months grace period after graduation to start repayment of loans which enables students to buy some time to establish themselves.


Types of Private Student Loans 


The private loans are of two types:

  1. School-Channel
  2. Direct to consumer

School-Channel Loans are loans where funds are disbursed directly to the school, the school signs off the borrowing amount and certifies the loan. However, it takes longer to process than federal loans but offers lowest rates of interest. The processing fees in some loans masks the real borrowing costs which enables the privates to afford such lower rates of interest and manage to earn reasonable profits.


Direct-to-customer private loans are loans where funds are disbursed directly to the borrower student. The student has to apply for the loans from the lender with minimum documents, who will after verification of the same grant a loan in a matter of days. The rate of interest however, is higher compared to school-channel loans.


Private Student Loan Consolidation


Whenever the loan cannot be paid or you need a deferment in payment of loans, consolidation is the best option for buy time and meanwhile continuing with the repayment of loans with a little bit of rescheduling in the repayment structure.


Private student loans and Federal student loans cannot be combined or consolidated for both are being funded by different entities and both charging different rates of interest. There are however quite a few options for private student loan consolidation.


Since the interest rates are decided by the lender, and not the government, there also subsists some additional fees to process the consolidation. The private sector does not have much competition in themselves regarding the amount of loans, hence the private consolidation is all about replacing two or more private student education loans with one another. The primary reason for any student opting for this scheme would be consolidating multiple payments and converting it into one single payment.


Also, the reorganization of the term loans will reduce the number of payments but spread the cumulative interest cost over the lifespan of the loan. The loans have to go through the credit rating test, which shows the credibility of the borrower. If the credit score card shows significant improvised ratings, you may get a lower rate on consolidation of loans. For example, after graduation, you secured a job in a very good company and thereby increased your ratings by a couple of points; the consolidation process will become much easier for you.


Refinance Student Loans through Credit Unions


Credit unions are like financial institutions which has features just like any other bank. It is a NPO (Non-Profit Organization) whose members provides financial services like accepting deposits, providing savings and loans etc. to their own members. The organization is formed by a group of people sharing a common link/bond such as place of employment, religion, community, caste.


The membership is generally free but it may also depend from union to union. The Credit union does not only offers financial services, but it also helps the members in creating a self-employment opportunities like starting up a small business and educating their kids.


Once you become a member, you will have to run through a test which varies with every union and determine your eligibility. Membership cost is generally zero, but may differ subject to the credit union. With the arrival of credit unions in 2010, a common underwriting and pricing, millions of credit unions were set up.


With the credit unions, you will to be expected be able to refinance your private student loans at lower rates. Also, probably you would save hundreds of dollars per annum in overall interest and payment expenses. And all of these without extending your loan tenure!


There biggest advantage attached with the credit unions is that if you have a co-signer, you may pay a lower rate of interest. On top of that, credit union loans often allow the co-signer to waive their debt if the borrower has successfully made 12 payments without any deferment.


A credit union is a life savior to those students struggling to pay off their debts.


Contact Bruce mesnekoff for any further assistance

Student Loan Help Center General Manager Bruce Mesnekoff joins us to Discuss the Student Loan Situation in America

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