Why you should use private student loans instead
Students and parents often wonder the best way to make up the difference between college tuition and financial aid. You could go to your financial institution for a private student loan, or you could pay with a credit card. However, facts show that if you do opt to pay with a credit card, you could be overpaying. Below are some of the downsides to paying for school using credit.
Credit cards lead to spiraling debt - In 2009, Sallie Mae reported that 92 percent of undergraduates charged direct costs for education like tuition and textbooks, and close to 20 percent of seniors carry a credit card debt greater than $7,000. U.S. News and World Report found that when added to an average of $24,000 in subsidized educational loans, most graduates are already in the hole more than $30,000 when attempting to enter the harsh realities of the real world.
Extra fees are attached - While not necessarily considered an “extra” fee, credit cards do often have high interest rates. Even student cards’ rates can start around 20 percent, and they multiply with late or missed payments. Furthermore, many colleges are actively discouraging students to pay via credit card by attaching what could be considered “processing fees.” With college tuition costs already rising at an alarming rate, even an extra 2.5 percent fee for a credit card payment could make your total cost of education skyrocket.
You could ruin attempts at procuring future credit - Because most college students don’t have a form of income while in school and credit cards can’t be deferred during enrollment, making those monthly payments could become a challenge. If you consistently miss payments, not only will your interest rate and your minimum payment due climb, but you will tarnish your credit score. Having a credit card in your late teens is often seen as a positive because it can help establish credit; but that plan will backfire if you cannot follow through on the terms, making it hard to obtain credit for buying a home or an automobile in the future.
So, why is going to your financial institution for a student loan a better option? Because despite common misconception, you can get a private loan with an interest rate as low as 6.12 percent, according to College Money Insider. Furthermore, most private loans, in addition to those federally funded, offer deferment, forbearance and/or forgiveness. Additionally, using loans instead of credit cards allows you to save your credit for emergency use, which should give you and your parents some peace of mind.
If you’re still not entirely convinced, the best option for anyone is to do your homework. Research interest rates on both credit cards and loans from various sources and compare them with due dates and other relevant terms and factors. Every person’s situation is different, so you should always do what is best for you.
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