Skip to main content
FamilyEducation
FamilyEducation
Family Education

FE-Menu

  • Pregnancy
    • <blank>
      • Pregnancy Tracker
      • Trying to Conceive
      • Signs & Symptoms
      • Pregnancy Health
    • <blank>
      • Baby Names
      • High Risk Pregnancies
      • Preparing for Baby
    • <blank>
      • Concerns & Complications
      • Labor & Delivery
      • Postpartum
  • Baby Names
    • <blank>
      • Browse All Baby Names (A-Z)
      • Top Names for Boys
      • Top Names for Girls
      • Baby Name Generator
    • <blank>
      • Baby Name Lists & Ideas
      • First Names By Origin
      • Browse All Last Names (A-Z)
      • Last Names by Origin
  • Babies
    • <blank>
      • Caring For Your Baby
      • Baby's Health
      • Feeding Your Baby
    • <blank>
      • Your Baby and Sleep
      • Baby's Growth & Development
      • Baby Hygiene
    • <blank>
      • Baby Safety
      • Baby Products
    • <blank>
  • Toddlers
    • <blank>
      • Toddler Growth and Development
    • <blank>
      • Toddler Behavior and Discipline
    • <blank>
      • Your Toddler and Sleep
  • Kids
    • <blank>
      • Health
      • Childhood Development
      • Fitness & Nutrition
      • Childhood Safety
    • <blank>
      • Communicating with Your Kids
      • Childhood Behavior and Discipline
      • Fostering Responsibility
      • Instilling Values & Manners
    • <blank>
      • Childcare
      • Neurodiversity in Kids
      • Adopting Children
  • Teens
    • <blank>
      • Teen Health
      • Teen Puberty & Sex
    • <blank>
      • Behavior & Discipline
      • Teen Social Development
    • <blank>
      • Values & Responsibilities
  • Activities
    • <blank>
      • Printables
      • Indoor Activities
      • Learning Activities
      • Arts and Crafts
      • Performing Arts
      • Food Activities
      • Outdoor Activities
    • <blank>
      • Books
      • TV
      • Movies
      • Online
      • Quizzes
      • Games
      • Celebrities
    • <blank>
      • Parties
      • Travel
      • Toys
      • Holidays
      • Gifts
  • Learning
    • <blank>
      • By Grade
      • By Subject
      • College
      • Preschool
    • <blank>
      • Back to School
      • Study Skills
      • Learning Styles
    • <blank>
      • Homeschooling
      • Parental Involvement
      • Your Child's School
  • Family Life
    • <blank>
      • Mom Life
      • Dad Life
      • Family Relationships
      • Having a Healthy Marriage
      • Divorce
    • <blank>
      • Health & Fitness
      • COVID Resources
      • Managing Your Home
      • Moving Your Family
      • Pets
    • <blank>
      • Family Finances
      • Work
      • Families and Food
  • NewslettersNewsletters
    Newsletters

Breadcrumb

  1. Home
  2. School and Learning
  3. College
  4. Private College Loan Perils

Private College Loan Perils

Learn the downfalls of applying for and paying private loans when it comes to college loans.
  • facebook share icon
  • pin
  • twitter share icon
  • email share icon
  • Print page icon

In this article, you will find:

  • Page 1
  • Page 2
  • Page 3

Page 1

Private College Loan Perils

Nearly 50% of undergraduate private student loan borrowers fail to exhaust their low-cost federal student loans to finance their college education.
--Consumers Union report

Alison Rabil, the director of financial aid at Barnard College, became concerned one day when she was examining figures on the number of students at the women's college who were taking out private loans.

Rabil and others in Barnard's financial aid office certainly understood why private loans should be a last resort. But the school's parents, even though many were college educated, didn't appreciate the potential hazards of a private loan, which is the fastest growing source of student debt in the country.

Consequently, the school in New York City decided to educate its moms and dads. When Barnard learns that a family is on the verge of assuming a private loan, the school arranges a phone interview with parents. After conversations with Barnard staffers, families often abandon their plan to rely on a private loan. Thanks to Barnard's initiative, according to Inside Higher Ed, an online industry publication, the volume of private loans at the school plummeted by 73%.

If you're not sure why private loans should be a last resort, keep reading. Here is what you need to know:

Private loans charge variable interest rates. Anyone with an adjustable rate mortgage already knows why loans without ceiling caps can be perilous. A loan with runaway payments can wreak havoc on a student's or parents' budget. Many people don't realize that private loan payments, which might initially seem manageable, will change because most private loans include variable interest rates that lack a ceiling cap.

Private lenders can discriminate. Unlike federal loan programs, lenders that market private loans can pick and choose their customers. Families with excellent credit can obtain better starting interest rates than those with average or worse credit histories. The less fortunate borrowers can get saddled with loans as bad as the subprime mortgages that helped smash the housing bubble. The spread between the starting interest rate for stellar customers versus those stuck with the worst rate can be 10 percentage points or more.

What's more, the interest rates and fees of private loans can vary from school to school. Some lenders take into account a school's overall loan default rate. So even if you have a pristine credit history, you could still get punished.

Private loans can be confusing. Many families who end up with a private loan believe they have secured a federal loan. Sometimes they don't even realize the mistake they made until they try to consolidate the debt with federal loans. There are many reasons for the confusion. First, the loan process can be bewildering. And families, after surviving the college matchmaking process, may hardly be in the mood to sort through loan possibilities in the spring and summer leading up to a child's freshman year.

Parents and students just want the cash, and they figure they'll worry about how to pay it back later.

If you're considering a private loan, here is what you should be doing:

Next: Page 2

What's hot

  • MoneyinHands School and LearningTop 10 Graduation Gifts
  • 8 Printable Thank-You Cards for Teacher Appreciation Week School and Learning8 Printable Thank-You Cards…
  • 5-Year-Old Write Backward School and LearningI Need Help! My Five-Year-Old…
  • "Thanks, Teacher!" Card Kids Can Color School and Learning"Thanks, Teacher!"…
NewslettersNewsletters
Your partner in parenting from baby name inspiration to college planning.
Family Education
FamilyEducation does not provide medical advice, diagnosis or treatment. Your use of the site indicates your agreement to be bound by our Terms of Use and Privacy Policy. Information on our advertising guidelines can be found here.

FE Footer

  • Newsletter Center
  • About Us
  • Privacy Policy
  • Editorial Policy
  • Editorial Team
  • Expert Panel
  • Cookie Policy
  • Site Map
  • Contact Us
  • Advertise
  • Terms of Use
  • Do Not Sell My Info (for CA Residents)
sandbox learning logo
Family Education is part of the Sandbox Learning family of educational reference sites for parents, teachers, and students. 

factmonster logoinfoplease logoTeacherVision logo

sandbbox logo
©2022 Sandbox Networks Inc. All rights reserved. Sandbox Learning is part of Sandbox & Co., a digital learning company.