Why Pick a Private Student Loan? | 08.17.10
With all the financial aid choices out in the wild, sometimes it isn’t clear why one solution is better than another. For instance, consider the ongoing debate between federal PLUS loans and private student loans:
- They both are credit-based
- They both can cover up to 100% of your cost of attendance
- They both can be used for non-tuition costs such as living expenses, books and computers.
So why pick a private loan over a federal one?
Well, for starters, there is more competition in the private student lending industry. The federal loans are great, but under no stress to lower interest rates or make their repayment terms more attractive to borrowers. Truth be told, they are the least innovative as far as borrower benefits in total.
What benefits do private student loans have?
It depends on the lender, but the industry standard slowly looking like APR reductions for auto-debit (usually 0.25%) and the possibility of co-signer release. In addition, some banks will give you extra off your APR if you pay your bill through one of their own bank accounts. Graduation rewards or bonuses are not unheard of either.
In short, the private banks are forced to be more generous with their benefits to get your money and often can become better deals for you if you have a creditworthy co-signer. If you don’t have a co-signer, federal loans likely are better for you because they have little or no credit requirement (PLUS loans require a credit check) for approval.
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