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Thursday, January 21, 2010

Student Loans-Overview and Private

Most students will end up taking out loans for school. But it is hard to know what loans to take and which to avoid. Student loans are broken into two basic categories federal and private. Federal student loans are backed by the federal government whereas private student loans are not consider to be back by the government. This article will cover private student loans and future articles will cover the different types of federal student loans.

Private loans are the WORSE type of loan to get. The consumer aka the student and parent if he or she cosigned have less protection that they would with a credit card and often the rate can be worse than a credit card. I once tried to see about getting a private student loan and called up a company that had sent me an offer. They were unable to give me an approximation of my rate unless I applied, even when told my credit score was over 760. The best approximation they could give me was 6-25%. Given that my credit card from my credit union had a fixed rate of 9.9, I was not very impressed.

With the credit card regulations in play private student loans are an even worse deal, than credit cards. There are no regulations on how they change your rate and student loans, even private ones, cannot be discharged by bankruptcy. So basically private student loan companies hold all the cards and have no reason to work with you.

Unfortunately the new credit card regulations also limit the ability of someone under 21 to get a credit card, unless their parents cosign or they have "sufficient" income, however no one has defined sufficient to me or anyone else.

If one still feel that he or she must get a private student loan, most credit card companies or banks offer them, however because of the credit crunch many of these companies are beginning to stop offering them.

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