February 1, 2013 | | Leave a comment Colleges and universities talk a lot about Pell Grants and Stafford Loans, and for good reason. These sources of financial aid come with low or no interest, and they make a good start for any college student trying to figure out how to pay for his tuition, fees, books, and living expenses while earning his college degree. But sometimes Pell Grants and Stafford Loans fall short of the amount needed. When this is the case, students can turn to other sources of funding to make up the difference. Aside from scholarships (which are a great, no-interest way to fund your college education), private student loans are a viable option for college students. Keep in mind, however, that not all private student loans are God’s gift to college students. Some come with a very steep cost, and if you don’t know what to look for, you might end up paying a heavy price after school. To avoid this disaster, you should get to know the different types of private student loans before you sign on the dotted line, and the keyword to look out for here is interest rate. These student loans fall into roughly three categories: 1. Loans from Family or Friends Depending on how generous your parent, your Uncle George, or your rich philanthropist buddy is, you might end up paying little or no interest on money borrowed from them. For example, if your dad forks out the money for your tuition if you agree to pay it back after school is finished, with no extra money asked, he has pretty much given you an interest-free loan. And that’s a really good thing. This is the advantage of borrowing from family and friends. They are usually doing it not to make a buck off of you, but to help you out in your time of need. If they do charge interest, it will likely be at a lower interest rate than you would get from a bank. There are disadvantages to borrowing from family and friends. There’s always the possibility that it will taint your relationship, especially if you find yourself unable to pay them back as promised. So, if you prefer to keep your personal life free and clear of such financial entanglements, you might think twice before asking family and friends to help you pay for your college education. To better navigate the tricky world of getting college funding from family and friends, check out our post “The Other Side of Financial Aid: Parents, Friends & Employers.” 2. Loans from Banks or Credit Card Companies Stafford Loans given through the government offer some of the lowest interest rates around. That’s one of the things that make them so desirable. This is not the case with private student loans from banks or credit card companies. You know those crazy high interest rates on your credit cards? You can count on seeing the same interest rates on their student loans. And these loans don’t usually come with the exceptions that you see on federal student loans as far as loan forgiveness, payment deferment, and economic hardship. Banks and credit card companies want their money and they want it now, and, with private student loans, there is no government in between to protect you. You’ve probably guessed from our tone that student loans from banks or credit card companies should be viewed as an absolute last resort. Their interest rates are twice that of Stafford Loans and they offer no protections for students who have trouble paying them back. To get the full details on the different types of private student loans from banks and credit card companies, read our post “Use with Caution: Your Guide to Private Student Loans.” 3. Tuition Assistance or Reimbursement Not all employers offer tuition assistance or reimbursement to their employers, but if they do, you can consider yourself fortunate. These employers will offer to pay part of your schooling costs if you further your education while working for them. The idea is that you improve your skills and knowledge at school and then bring those newfound skills into the workplace for their benefit. To find out the exact details of how tuition reimbursement or assistance work, you should talk to the human resources expert at your workplace. You can also read our post “The Other Side of Financial Aid: Parents, Friends & Employers” to learn more.