Nitro Contributor Updated on August 23, 2016

Private student loans used to have a bad reputation. Interest rates were only the variable variety, often increasing over the life of the loan. Not good. Borrowing limits would sometimes be greater than the cost of attendance, often saddling parents and students with mountains of debt. But not anymore. Now, rates can be lower than federal student loans to parents, and generally borrowers aren’t approved for amounts greater than the cost of attendance.

Check out these truths behind common private student loan myths…

1. Private student loans are always more expensive than federal student loans.

Families are encouraged to try federal student loans first. But PLUS loans--federal student loans borrowed by parents--may have higher interest rates than private loans. Currently, parent PLUS loans from the federal government have interest rates approaching 7 percent. Private loan interest rates may be lower than 4 percent for parents. Also, parent PLUS loans have loan origination fees--fees charged to borrow the money. The fee currently charged is just over 4 percent of the loan value. That can add over $160 to the cost of borrowing $4,000.

2. Payments will vary.

Once upon a time, private loans always had variable interest rates, which means that what you were paying was based on the general economy over the course of the loan. If you've ever had a variable rate home loan, you've seen how rising and falling interest rates impact your payment. If your interest rate this year were 4 percent and it jumps to 7 percent in the next year, you'd pay 75 percent more in interest. Payments could go up by hundreds of dollars. If your interest rate isn’t fixed, you're at the mercy of the market. You can still choose a loan with a variable interest rate. However, you can also choose private loans with fixed interest rates, and know exactly what you'll be paying for the life of the loan.

3. You can never get a break from payments.

Federal student loans universally guarantee breaks from payments when you have a financial issue, but private student loan lenders can choose to offer payment breaks as well. Before you sign up for a private loan, ask about what happens if you need to take a break from payments for financial reasons. It’s important to note that you may not qualify if your co-signer is financially able to make payments.

4. You’ll borrow more than you should.

Once upon a time, private lenders would let you borrow amounts that were beyond the cost of attending college. That’s no longer the case. However, that still doesn’t mean you should borrow the full amount offered. Only borrow what you need and can afford to pay back. To determine the amount you need, look at the cost of attendance. Also consider what costs can be trimmed. For instance, let's say the cost of attendance estimates from a university’s website showed new textbook prices around $1,000. However, if you buy used and shop online, you might be able to get your books for less than $200. Any student money management office can also recommend cost-cutting measures. If the amount you need is more than the amount you can afford to repay, talk to the financial aid office about additional scholarships--or consider other schools.

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