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The cost of a college education can be exorbitant, and many students turn to student loans to pay for at least a portion of their tuition, fees and books. Some may also offset these loans with income from a part-time job, grants, scholarships and other sources of funds. Many students who must use education loans to pay for their education fail to realize that there are two main types of student loans available. These are federal and private education loans. It is best to understand the key differences between these two options before you apply for a loan. However, if you have already taken out loans, you may now be wondering what your options are for debt management and repayment.

What Is a Private Student Loan?

In most instances, a federal student loan is considered to be a more advantageous option. Many financial experts recommend that students maximize the amount of funds available through federal education loans first before turning to provide loans. With a private loan, you may generally expect to have higher interest rates, and the loan repayment process may even begin while you are still a student in some cases. The interest rate may be as high as 18 percent or more, depending on your credit rating. More than that, the interest is typically not tax deductible. These are some of the key features of a private student loan that differentiate this funding source from a federal student loan.

What to Expect From Private Student Loan Payments

Paying back the money from a private student loan can be challenging in many cases. As mentioned, some lenders require you to start repaying the money you owe on a private student loan immediately, regardless of whether you are still in school or not. Because the interest rate is higher, these loan payments are often considerably higher than a federal student loan. Many students eagerly research options for managing these debts, and consolidation is a top option that they consider.

The Benefits of Consolidating Private Student Loan Debt

Private student loans are driven by your credit rating. The initial interest rate is therefore established while you are a student, and this is a time when many consumers do not have a good credit rating. Consolidating a private student loan may therefore provide you with the ability to obtain a better interest rate, but this is often only the case if interest rates have substantially improved or if your credit rating has improved. In some cases, you may also extend the loan term through refinancing, and this may generate more affordable monthly payments.

Should You Refinance Your Private Student Loans?

There are a few key factors to consider in order to determine if you should refinance your private student loans. First, consider your budget and your current ability to repay the loan with the established monthly payment. Second, review the loan options to determine if refinancing may lower the rate through a lower interest rate, a longer term or both. Third, determine if the interest is deductible on the new loan. Many private loans are not tax deductible, but some are. By refinancing into another private education loan, there is a chance that you may lose your tax deduction qualification status.

Using a Home Equity Loan as an Alternative

If you have already graduated and are more well-established from a financial standpoint, you may be able to qualify for a home equity loan for consolidation. You will need to review your home’s available equity to make this determination. A home equity loan generally may establish the debt on a longer term. This may be beneficial if you want lower payments, but it can unnecessarily extend the term so that it takes longer for you to pay off and so that interest charges accrue more substantially. However, a home equity loan generally has tax deductible interest. Re-establishing your debt so that you can deduct the interest on it can be financially beneficial.

What to Look For in a New Student Loan

If you have decided to pursue a refinance or consolidation loan, consider paying attention to a few key points. First, the interest rate on the new loan should ideally be substantially lower than what you are currently paying. Second, the term should not be so long that it burdens you with debt payments for a lengthy period of time. Third, the payments should be affordable for your budget. If possible, the interest will be tax deductible under the new loan.

Private education loans may not have many desirable qualities, but they nonetheless can help you to pay for your college education when no other options are available. You may be able to better manage the repayment of your loan by refinancing or consolidating the debt. Carefully examine the options to make a wise financial decision.