UPDATED: Dec 10, 2020

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Written By: Joel OhmanReviewed By: Sara RouthierUPDATED: Dec 10, 2020Fact Checked

College may have lost some of its luster.

While it is common knowledge that young people are struggling along with the rest of America, it is also commonly known that people need to go to college in order to succeed. At least, so the mantra is repeated.

As many a barista can share, a college degree isn’t the guarantee of a good job, let alone a full-time one. Adding salt to many a college graduate’s wound is the heaping debt that many accumulate to afford a college education.

Like climate change and reality TV, tuition seems to just keep getting worse and worse each year. Of course, this is of little concern for the government, since they dominate the college financing market with federal student loans. Despite the snail’s pace economic recovery, most anyone can qualify for federal student loans.

Even though most people can qualify for federal student loans, that doesn’t mean they get all the money they need.

Enter, private student loans.

Available online, at credit unions, banks, and sometimes even through schools themselves, private student loans allow people to borrow money for college.

Unfortunately, some private student loan borrowers regret their decision to forgo federal student loans.

Regret and Private Student Loans

“I am a private student loan borrower who wishes she would have known the difference between a federal loan and a private loan,” said Amanda Bate, a Marketing Manager at ViMax Media and a college graduate under heavy debt.

Bate first attended Sweet Briar College from 2004 to 2005. She then transferred to Valparaiso University and graduated in 2008. Unfortunately for debt’s sake, the Great Recession forced her to return in order to complete her Master’s Degree. When she graduated in 2009 she had $150,000 in private student loan debt in addition to $14,000 in federal student loans.

Like some private student loan borrowers, Bate regrets borrowing them.

“They are a disaster,” she said. “My monthly student loan bill is $1,470, and I have called repeatedly and asked for an income-based repayment plan, so that I could lower my payment, but my loan companies are unwilling to work with me.”

Bate now finds herself constantly broke despite her decent salary since most of her income is prioritized to college-related debt. Her life plans have ground to a screeching halt. 

She wishes that she would have known the difference between private student loans and federal student loans.

“At 18, I had no clue about what I was really taking on,” she said. “I was starry eyed with the opportunity to go to college and make something of myself. I really needed information regarding the types of loans, but nothing was available and I regret not doing my research.”

What Bate finds most attractive about federal student loans are the income-based repayment plans. These flexible plans, along with other federal student loan benefits such as deferment and forbearance options, are the primary reason that many people favor them over private student loans. While she wishes she could repay the amount she borrowed, at present her finances are in desperate need of a break from constant penny-pinching.

“The economy needs my generation to bolster its decline, but we are too heavily weighed down with increased interest rates and loan companies who took advantage of children looking to better themselves and go to college,” said Bate.

She urges all prospective private student loan borrowers to do their research and speak with existing students attending their college of choice. She even advises speaking to financial advisors before borrowing any money and to go to community college for two years before seeking an advanced degree.

“If I could go back in time, these are all the things that I would have done,” she said. “Entering the real world with $164,000 of debt weighing you down is not how you want to start out.”

It is easy to understand Bate’s situation. She, like many teenagers entering college, borrowed student loans and years later became responsible for the debt she agreed to take on.

Sadly, it is unlikely she will be able to discharge her student loan debt via bankruptcy, but at the very least, she and others like her can act as cautionary examples to private student loan borrowers.

Caution With Private Student Loans

Everyone should be cautious when borrowing money, especially students who are just leaving the nest. However, an individual’s feelings of regret can be tentative from one day to the next, or in the case of student loan borrowers, from one job to the next.

Robert L. Mackey, President and CEO of Housing and Credit Counseling Inc, said that it is difficult to report what student loan borrowers wish they had done.

After all, a borrower who struggles for years before finally landing a great career or building a successful business, is likely to view their financial position differently. This goes double for borrowers who only turned to private student loans after borrowing what they could from the government.

“Federal student loan limits are usually exhausted before private student loans are considered a part of financial aid award package,” said Mackey.

Mackey urges students to complete a FAFSA applications and to see what financial aid is available to their school’s financial aid department. This is to take advantage of aid before turning to student loans, which as Bate demonstrated, can end up being a figurative ball and chain.

However, federal student loans do have some benefits that private student loan borrowers like Bate cannot utilize.

“If you are having trouble repaying your federal student loans, you may be able to temporarily postpone or lower your payments,” said Mackey. “This is called a forbearance or deferment of the loan.”

In addition to forbearance and deferment, federal student loans offer several repayment plans, including options to tie monthly payments to income. Of course, borrowers can also have their total student loan debt forgiven if they work in public service for a set period of time.

These benefits though, are beyond the reach of private student loan borrowers.

“Private student loans may not offer forbearance or deferment options or loan forgiveness,” said Mackey. “Generally most private student loans do not offer the various repayment options; therefore it appears more private student loan borrowers have difficulty repaying.”

As Bate and Mackey have revealed, private student loans, despite their necessity for many college students, carry some heavy repercussions along with a potential for difficulties post-graduation. Keeping this in mind, wisely selecting a major, and working hard at building a career are all actions that can mitigate at least some of the risk that comes from borrowing private student loans.

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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He also has an MBA from the University of South Florida. ...

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Written by Joel Ohman
Founder, CFP® Joel Ohman

Sara Routhier, Managing Editor and Outreach Director, has professional experience as an educator, SEO specialist, and content marketer. She has over five years of experience in the insurance industry. As a researcher, data nerd, writer, and editor she strives to curate educational, enlightening articles that provide you with the must-know facts and best-kept secrets within the overwhelming world o...

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Reviewed by Sara Routhier
Director of Outreach Sara Routhier