Private Alternative Student Loans Are Often Required In Addition To Federal Funding
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Most of the Federal student loan programs do not require a credit check to be undertaken and will provide students with substantial financial aid. These programs are however based upon need and often carry other criteria which may make it difficult to qualify. Even if a student does qualify, these loans will only cover a proportion of the total cost of education in many instances. When students are caught in this position then they could look to alternative student loans to make up the difference.
Private alternative college loans too have their own problems. A credit check is almost universally required and this is fine as long as you have a good credit history. But ‘good’ is very much a relative term and if your credit history is not quite good enough then you will find yourself paying more than the standard interest rates.
On top of the stated rate of interest there are additional monetary implications to alternative loans. Fees will normally be added on to nominal loan amounts and a reasonably small loan of $3,000 might easily have 4% in fees added before distribution. That means $120 of the total loan will never be seen by the borrower but nevertheless has to be paid back. As a very rough guide, 3% in fees is equivalent to an additional 1% on top of the quoted interest rate.
However private loans do have some advantages.
The first and possibly the most obvious one is that money is available. Private lenders make their money on the interest and fees that they charge and so have a vested interest in making funds available to borrowers and will work very hard to ensure that each applicant qualifies. By contrast Federal lenders work under a rigid set of criteria and there is frequently no real appeal if your loan application is turned down.
Not having to deal with that cold and often unreasonable bureaucracy is another benefit of alternative loans. Alternative lenders maintain customer service departments that are there to deal with questions so that borrowers can get the answers that they need. Government loan programs often have help available as well but the answers you get are hit or miss when it comes to quality.
Another feature which makes private alternative loans especially desirable is the fact that neither students nor parents have to complete FAFSA (Free Application for Student Aid) forms and supply a mountain of supplemental documentation. Alternative loan applications tend to be simpler and indeed the entire process is easier. Neverthless, interest rates and fees could be higher or lower depending on the individual loan program.
The best alternative loans attract no fees and interest rates which are approximately equal to the prime rate. The ‘prime rate’ is the rate that banks charge each other or their biggest and most favored customers. If you can get a rate at prime then this is a good deal and locating a rate at 1% below prime is a truly great deal.
To obtain that sort of loan it is generally necessary for you to have an excellent credit history or have a co-signer to the loan who has a very good credit history.
At the end of the day, the only way to discover whether or not private low interest student loans will meet your needs in terms of finding money for college is to get out into the market and see precisely what is available.
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