When is the Right Time to Get a Private Online College Student Loan?

Online college student loan

If you are looking into school you probably started with tuition prices first, and apparently you are now thinking of an online college student loan. Obviously, if you are reading this article you probably cannot afford $150,000 a year and Harvard or Yale. You want to know how to get the most education for your dollar, and, by the way, where you can get someone else's dollar to pay for your school; you are not alone. There are other inexpensive online degree programs, but there is also financial aid to help pay for college.

By far the best way to pay for school is through a Federal Pell Grant. This is free money, given to people based upon financial need, to let you go to school. If the Pell Grant is not enough, then an online college student loan in the form of a Federal Student Loan is your next best option; be sure to read our other articles so you understand the two main types of Federal Student Loans - the differences can save you thousands. But sometimes these Federal programs just are not available to you and you need to consider an online college student loan that is private, that is a loan made through a bank and secured by your signature alone. Read on.

The Danger's of Private Students Loans

Private student loans are dangerous for a few reasons. First, they have considerably higher interest rates than Federal loans. Second, they have inconsistent, non-regulated terms, meaning that you have to read the fine-print to know when interest rates might go up, when repayment must begin and more. Third, private student loans do not qualify for unemployment or hardship deferments, or income based repayment programs, like Federal loans do. Fifth, private student loans have no legal maximum, thus if you are not careful you can borrow far too much money, more than you can afford to pay back after you graduate.

When is a Private Loan the Smart Choice

If you ask financial wizard Suze Orman, who has had her own financial show on CNBC for over ten years, she would tell you unequivocally that there is never a good time to get a private student loan. Most financial advisors who are true consumer advocates abhor private student loans for the reasons that we stated above - and they are right. Private student loans cost more and they put your financial life in jeopardy in a way that Federal Stafford Loans do not. However, for some people there is little choice. So, when it comes to an online college student loan, who might want to skip this sage advice and get a private student loan anyway? The answer is that some people in the upper middle class may need to consider such loans, despite the many reasons to avoid them.

Let's look at one scenario. Mary comes from a good family. Her parents both work respectable jobs. They are comfortable, but by no means wealthy. Her parents, though, have always lived a bit beyond their means and some family issues have come up over the years. In short, Mary's parents were unable to save for her education. In fact, they have little saving's themselves and barely enough money for their impending retirement. However, according to their FAFSA (the required first step of applying for Federal Financial Aid) they earn too much money to qualify for more than a few hundred dollars worth of aid, not nearly enough to send Mary to college. They have so much debt, however, that they cannot really afford to pay monthly for Mary's college either. Mary is stuck.

Private loans can be an option here. Private student loans are based on credit, not need. Thus, if Mary or her parents have fair to good credit they can likely get a private loan which will not have to be paid back until Mary graduates, and presumably can afford the payments. Certainly, an online college student loan, specifically private loans, can be an option.