As the cost of higher education goes up, the necessity for additional funding becomes more and more necessary. As students seek higher levels of education, many are now turning to private student loans to cover the climbing cost of education. If you are one of the growing numbers finding themselves in private loan debt, never fear. There are ways to quickly pay off these loans while avoiding the harsh penalties of delaying the repayment and the potential pitfalls of the less attractive terms of these types of loans. To do this, you need to understand two things:
- What Makes Private Student Loans Different?
- Strategies for Paying Off Private Student Loans
What Makes Private Student Loans Different?
There are many characteristics of private student loans that make them less desirable and more burdensome than traditional federal student loans. While federal loans offer the benefits of consolidation, forbearance, deference, forgiveness, and discharge of debt upon death, private loans do not provide the same benefits.
More often than not, private student loans are like consumer debts which allow the lender to establish less favorable terms of repayment for the borrower. This often means the borrower will have a higher and variable interest rate which even consolidation cannot lower. Additionally, even if you can postpone a payment through a grace period, you will still continue to accrue interest, ultimately increasing the overall amount that you owe in the future.
Strategies for Paying Off Private Student Loans
Now that you have a fleeting idea of the ugly truth of private student loans, how is one to escape this predicament? The first step is to develop a plan of repayment which includes prioritizing your loans. Due to the high interest, it is advisable always to pay your private student loans before government loans. The second step is to know the total amount of your debt and the monthly repayment amount. The third phase is to pay down the principal by always paying more than the minimum payment.
Using a Home Equity Loan
If you are having problems making payments, your lender may allow for forbearance, deferment, or cancellation as a last resort. Additionally, depending on the interest rates, using a fixed rate home equity loan may be wise for homeowners. Finally, always remember that with any student loan, there is no penalty for prepayment!
In short, if you took out a private student loan to make it through college, you are not alone. As a matter of fact, the number is steadily increasing. Fortunately, with knowledge and planning, you do not have to stay stuck paying off private student loans but instead can find yourself free of this debt with perseverance and dedication to paying it off.
Be smart about this type of student loan and soon, you will no longer be weighed down by this burden. For optimal results, you need to first follow the steps above. Second, you need to be wary of the terms of your private student loan. And lastly, you need to stay committed to your plan!
Featured Image Source: Thinkstock/zimmytwsPosted on May 5, 2023