Alternative/private student loans

Because alternative loans are funded and administered by private lenders, each has its own unique terms and conditions. The following information will provide some general guidance, but you must obtain details about specific loans from the lender.

Only use alternative loans as a last resort in funding your education.

• You should exhaust all of your scholarship and grant options before looking towards any loan program.
• If you still need to borrow money to pay for college, try to obtain federal student loans first, requesting alternative loans only if you need additional funding.

Application

The federal government does not fund alternative (or private) loans, which are credit-based loans approved based on the good credit history of the student and/or a co-signer.

• Co-signers may be required for an alternative loan for those students who have little or no credit history or those with a negative credit history. Some lenders may require a co-signer regardless of the student's credit history.
• Before applying, you should first check your credit report for any discrepancies.
  • Lenders take the credit report information and enter it into their computer models to decide the amount potential borrowers can borrow with or without a co-signer.
  • Although the credit report itself will not tell you if you will pass a lender's credit scoring, you can identify and/or correct any problems or errors on the report before you apply.
  • It can take at least six months to have any errors on your credit report fixed, depending on the error and the credit reporting agency.
• The lender has sole discretion on approval of alternative loans.
• Most alternative loans require that a student be attending school at least half time.

Choosing a lender

You should carefully review the interest rates and fees charged by the alternative loan you are considering, in order to find the one that best fits your needs.

• Many alternative loans have a variable interest rate that changes every quarter, with no cap - or a very high cap - on the interest rate. The interest rate may be related to the credit score of the borrower.
• Some lenders charge fees on alternative loans. These fees can be based on credit or can be mandatory fees charged at origination, disbursement, or repayment.

Repayment

Most alternative loans give students 15 to 25 years for repayment. You should review the repayment options offered by each loan you are considering, along with any borrower benefits offered at repayment.

• Typically, you don't have to make payments on the alternative loans while you're enrolled at least half time.
• You may be allowed a grace period after you graduate, drop below half time enrollment, or withdraw.
• Alternative loans generally don't have deferments or forbearance (permission to postpone or lower payments).
• Alternative loans CANNOT be included in a Direct Consolidation Loan.
• In most cases, you will not be able to have an alternative loan discharged in a bankruptcy.

More information

Read our private loan counseling content (PDF) and talk to your school's financial aid office.