What if I don’t qualify for federal student loans?
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UPDATED: May 9, 2012
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When students find themselves unable to qualify for federal student loans, there’s another avenue of obtaining college financing: private student loans. Students usually view the private sector as a backup option to fund their college endeavors since private rates are usually higher and less desirable than the government’s offers.
However, times may be changing.
One key difference between federal and private student loans is in the type of interest rate that comes with each. Not only does government financing typically come with lower interest rates, but it also usually comes with fixed interest rates. Private, on the other hand, often comes with variable rates.
Fixed rates tend to be favored amongst borrowers because they are predictable. Borrowers seeking student loans with fixed rates will know exactly how expensive their monthly payments will be for the entire duration of the financing.
On the other hand, those with variable rates will be given a general price range that their payments can fluctuate between, but they unfortunately are left to the mercy of whatever index their loans are tied to.
But recent and upcoming changes in the student financing world may have a profound effect on these traditional ways of viewing government and private opportunities.
Federal student loans are currently being offered at such low interest rates because those rates are being artificially held at 3.4 percent. That artificial hold was created by legislation some years ago, but that legislation is now set to expire on July 1, 2012. Both parties in Congress have announced their support for extending the legislation, but their constant bickering and practice of bundling this extension with other party-specific agendas have prevented it from being passed.
If the legislation is not passed by July 1, then interest rates will double—spiking to 6.8 percent.
In the wake of this current debate on Capitol Hill, Sallie Mae made an unexpected, but highly beneficial, announcement. The private student loan lender will be offering fixed-rate financing options at a relatively low 5.4 percent.
For those who don’t qualify for federal student loans, Sallie Mae has come to the rescue. In the event Congress doesn’t get its act together and allow federal rates to double, then this private college financing opportunity may prove to be the best option available for all college borrowers.