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May 24

Private Loans vs. Public Loans

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1.3.1   Public Loans Advantages:

The principal reason why people choose public loans is the interest rate. In addition, there are home equity loans which are lower than private education loans, and they consider also, the unsubsidized Stafford loans. Other options are:
 Interest Tax Reduction, both home equity loans and lines of credit are tax reducible.

 Responsible Part, the responsible for repaying the loan, could be the parent or the student, however is important make the parent to co-signs the loan, so if the student does not pay on time, the parent will be the responsible.

 In-School Deferments, fortunately now several loans permit to delay payments while the student is in school, however this action increase the size of the loan.

 Interest Rates, even when the difference between PLUS loans interest rates and home equity loans are minuscule; in comparison with the private student loans, it is much lower. Besides, while PLUS loans interest rate is fixed, the private loan is variable.

 Availability, according to the statistics more than 80% of applicants can get a PLUS loan; due to the credit requirement are not as severe as the used for private student loans.

 Defaults, with federal education loans the government can use the income tax refunds because is hard to find, while in home equity loan default, you could lose your home.
1.3.2  Private Loans Advantages:

Even when private loans are more expensive than public loans, here you will find some reasons:
 Less monthly payments, while public loans offer 10 years, a private loan have 20 or 25 year loan term, so this means the less monthly payments with more interest rate though.

 Much more marketing, private loans are more valuable and useful to their borrowers because they receive and incentive for promote these loans.

 Bureaucracy and Privacy, the process for a private loan is simple, with not so much paperwork; and even more due to its privacy with financial information.

 Familiarity, customers are used to use things that they already know, so they trust on their bank fulfilling their recommendations without thinking in the costs.

 Indifference in costs, many students and parents turn on the federal loans because of their higher costs in interest rates monthly or total of private loans, however just a few is able to quantify that difference in concrete terms,

 Eligibility complication, sometimes students and parents think that due to they get bigger incomes, they are not eligible for federal loans.

 Deferments during school, just some loans offer deferments while the students are still in school, even when this is a hard process to follow.

 Borrower’s preference, when the parents have been unable to borrow by a program, is the student who can get their own credit.

 Satisfactory Academic Progress, which means that those students who did not get a (SAP) by 2.0 GPA minimum, can get a private loan, because they are unable for a federal loan.

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