Most borrowers who apply for private student loans use them to make up the difference when they’ve exhausted the amount of federal student loans they can borrow. Then they put in more private loans to make up the difference. The savings account applies a different type of borrowing and the additional investment on private loans is worth less. Most people, though, use both types of loans. They just subtract the savings account from the balance on their federal student loans, they use a student loan calculator.

Are private student loans safe?

Its hard to say whether private student loans are safe. Some private lenders will even let you deposit a bunch of money into a savings account, but many lenders don’t let you take more than $10,000 at a time. Also, you’ll want to keep a close eye on that money you’re investing, since it’ll get taxed when you withdraw it.

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Another factor to consider is the difference between the interest rate on private student loans and on federal student loans. Private student loans, at many lenders, come with much higher interest rates. Its possible for people to get better interest rates on private student loans, but many lenders usually do a better job screening out borrowers who could have trouble paying their bills.

 I heard the law changes will lower interest rates on private student loans. Is that true?

Private student loans are subject to underwriting, which means they are subject to scrutiny from state and federal regulators before a loan is approved for filing. Underwriters could say a loan could earn a higher interest rate, and maybe a higher rate for a few years, but soon rates will start going down.

If federal student loans are like credit cards, then what happened to the private student loan program?

Many people thought they had gotten rid of private student loans when Congress passed a bill allowing borrowers to consolidate student loans with private loans. The law also allowed federal government agencies to stop paying private student loans after 10 years.

That law, however, only allowed a borrower to consolidate his or her federal student loans with those of his or her spouse, parent or sibling. It didn’t let borrowers combine federal and private student loans. The federal government continued to pay for private loans, and it continued to participate in the savings accounts program.

 

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