Private student loan defaults are now finally in a decline. Regarding defaults past ninety days, the rates of individuals with private loans has dropped to about three and a half percent. That in turn raises the question, why? More so, what can we do to either keep the trend this low or to drop it even lower. First, one must understand what makes private student loans challenging to begin with.
The Challenges of a Private Student Loan
-Private Student Loans Typically Require Repayment Immediately
This is where a private student loan differs drastically from the student loans that are supplied by the federal government. Those do not require you to start your repayments until you are no longer going to classes for full time. Alas, the same does not apply when it comes to private student loans. This will depend on the lender and the service terms they provided when the loan was originally signed for. Given the loss of work availability to those who are going to school full time, having to start repayments immediately while still in school is a major financial disadvantage from the very beginning. It also adds much unnecessary physical and emotional stress to the individual working to pay back the loan.
-Interests Rates Tend To Be Higher On Private Student Loans Than On Their Federal Counterparts
The rates of interest for student loans from the federal government not only have a cap to the amount in which they can increase, but can also be consolidated at the time of the student’s graduation. Unlike these federal loans, private lenders can fluctuate their interest’s rates whenever they feel the desire to do so without any repercussions and without needing permission or approval from the student. Just because the occasional lender will advertise for a rate lower than a federal one is advertising, does not mean that the rate is even a “fixed rate” or will stay that way for any period of time. This could lead to rates that are more similar to those found on a credit card line than what should be considered a normal rate from a student loan. It is also best to keep in mind that amounts of student loans can be much larger than most other debts that you could incur. This makes the rate of interest matter that much more due to the large amount of money involved in the process.
-Private Student Loans Lack Assistance Options When Compared To Federal Loans
Student loans from the federal government carry many more assistance and forgiveness options than those handled by private lenders. With loans given out federally, you are guaranteed a number of forbearance and deferment payment options and they will generally offer some form of lenience if you are going through a rough patch. If your private loan has a low interest rate and a grace period, then this might not make much of a difference for you. However; it typically takes about twenty years to pay back a standard loan and so very much can happen in such a large amount of time. Private student loans should really only be taken out when absolutely necessary and when federal student loans are not quite enough to cover what is needed by an individual.
The Reason So Very Many Individuals Default On Their Student Loans
Many reasons exist as to why borrowers of student loans all too often end up defaulting on them. The kind of loan taken out can make a huge difference in this, as can the type of school that was attended and whether it was a traditional school or one that was for-profit. It also comes down to whether employment can be found at all and if so, the kind of employment the individual is capable of getting before and after they graduate.
Decline in Private Student Loan Defaults
The most recent of data suggests that the decline in private student loan default lies with an unemployment decrease rate all across the board.
Priorities and Their Relation to Student Loans
The reason that unemployment is followed so very often by a default on the student loan is crystal clear. When you don’t have a job or enough hours to pay your bills and make your obligations on time, you are typically more concerned about making sure you have a place to live and food to eat and far less concerned about anything involving absolutely anything else. College is supposed to be about giving individuals the best opportunities for a better future and for a better life for them and their families. With so many more students going to college and the economy becoming steadily more and more unstable, this bright future that was once promised is no longer a certainty. Students will have to take great care in their everyday lives to keep from defaulting on their student loans.