As a result, private loans have become a necessity for a lot of families. Many students, though, aren't getting the message. A 2003 analysis by the Public Interest Research Groups found that nearly half of undergraduates with private loans did not first borrow the maximum available from the Stafford program. About a quarter of those students bypassed the federal loan program entirely.
Financial pressures on parents :-
Parents of undergraduate students can supplement their children's aid and loan packages with a Federal Parent Loan to Undergraduate Students, or PLUS loan. PLUS loans carry a fixed rate of 8.5%.
The credit standards for these loans are less stringent than those for private loans, and parents can borrow up to the full cost of college.
But parents are increasingly reluctant to borrow for their children's education, lenders and financial aid directors say. Over the past decade, the amount borrowed from the PLUS program has grown at a far slower rate than the amount borrowed from private student loan lenders.
Co-signing typically provides more favorable rates for student borrowers, but it doesn't get parents off the hook. If the borrower can't make payments, the parents who co-sign are then responsible.
Current interest rates are relatively low, rates on many co-signed private loans are lower than PLUS loan rates. But some borrowers might not realize that private loans are like adjustable-rate mortgages (ARM) i.e. If interest rates rise, the rates on their loans will go up, too.
Loans for life :-
Private lenders insist the long-term benefits of a college education are worth the extra cost of a private loan. Even if it's at a slightly higher rate, it still helps the students pull themselves up and live the life they want to live.
But if borrowers are unable to find well-paying jobs, they could run into serious financial trouble. Borrowers who are unemployed or suffering economic hardship are entitled to defer payments on their federal loans for up to three years.
Private lenders aren't required to offer hardship deferments, though some do so voluntarily.
In addition, a provision included in the stricter bankruptcy law that took effect last year makes it nearly impossible for borrowers who file for Chapter 7 bankruptcy to erase private student loans. Under the law, borrowers with private loans must show "undue hardship," the same strict standard that applies to federal loans.
Borrowers must convince the court that they'll never earn enough money to repay the loan — an unattainable standard unless the individual is permanently disabled, bankruptcy attorneys say.
Consumer groups counter that providers of private student loans don't deserve special bankruptcy protection, because there are no limits on the fees or interest rates they can charge borrowers. And because these loans lack protections included in federal loans, some borrowers could spend the rest of their lives paying off high-interest student loan
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