Alternatives to Federal College Student Loans
Students, who have exhausted all of their scholarship, grant, and federal college student loan options, can obtain alternative or private student loans to help finance their college education.
Alternative or private student loans are credit based student loans that are not funded, or guaranteed, by the federal government. Instead, various private financial institutions have developed these college student loans to help students pay for their higher education.
Alternative Student Loans vs. Federal College Student Loans
Private student loans are very different from federal student loans. You should be aware of these differences in order to choose the right student loan, which will be best for you. There are many important characteristics of alternative student loans that need to be considered that distinguish them from federal college student loans:
• Because alternative student loans are credit based and a student may not have enough credit history of his or her own, a co-signer for loan approval will probably be required.
• The interest rate of an alternative student loans can be high because it is based on a student’s credit rating.
• Students attending a 2 year schools are typically not eligible to borrow alternative student loans.
• The origination fee is typically higher than those of federal college student loans.
• Alternative student loans do not generally have deferments or forbearances, though most do offer flexible repayment plans.
• Not all alternative student loans offer grace periods like federal student loans.
• There is no interest subsidy on any of the alternative student loans, so the student is responsible for repaying all of the interest, including the interest that accrues while he or she is still attending school.
• Alternative student loans cannot be consolidated into a Federal Consolidation Student Loan.
• Most alternative student loans require that a student be attending school at least half time.
Make Sure You Check Your Credit Report
Before you borrow from an alternative student loan program, you should check your credit report for any discrepancies. Lenders will take your credit report information and use it to decide the amount of money you can borrow with or without a co-signer. A credit report itself will not determine if you can pass a lender’s credit scoring, but you can see if there are going to be any problems or errors on the report before you apply.
Review Your Repayment Options
You should definitely review the repayment options offered by each alternative student loan along with any borrower benefits offered at repayment. Typically, most alternative student loans will give a student 15 to 25 years to repay the alternative student loan. Some repayment options may include:
• Monthly principal and interest payments
• Student Loan Interest only during the in school period
• Deferment and capitalization of interest rate during the in school period
Do your homework when looking for alternative or private student loans. Read all the fine print and be smart about the whole thing with alternative private student loans. What you do today will only benefit you in the future.
