If you can't arrange as much financial aid as you need through a college-based package and federal loans, you may consider alternative loans that are funded and administered by private lenders such as banks, credit unions, and loan companies.
Unlike federal student loans, private loans are credit-based. This means you need a good credit report and a strong credit score to qualify to borrow. The lender will also consider your job history, income, and other assets.
It's smart to get a copy of your credit report and credit score before you begin the application process. The sooner you do that, the sooner you can begin working toward improving your score to ensure your creditworthiness makes you eligible to borrow.
If you can't qualify on your own, perhaps because you've never used credit and have no credit history, you may be required to have a co-signer who qualifies to borrow. In fact, some lenders may require a co-signer regardless of your credit report and score. The co-signer promises to repay your loan if you default, or fail to live up to your obligation to repay.
Ask your Student Finance department for help with the loan process to ensure you review all your options and obtain all the information you need to help you make a smart borrowing decision.
TERMS AND CONDITIONSEach private lender has its own terms and conditions for borrowing, and you must ask for details about specific loans from each lender. Like most federal and college-based loans, most private lenders require that you be attending school at least half-time. But there are major differences too:
- Private lenders usually charge a variable interest rate that changes every quarter. The interest rate may be related to your credit score or the credit score of your co-signer. Many of these loans have no interest rate cap — or a very high cap.
- Some lenders change their rates based on changes in what is known as the prime rate — the rate determined by Federal Reserve Bank policy — or some other public index. Then they add what is known as a margin, or specific number of percentage points, to determine the rate they charge.
- Private lenders may charge fees for the education loans they offer. Some fees may apply to all borrowers and be charged at the time of origination, disbursement, or repayment. Some fees may be based on your credit score.
- Repayment terms may be less flexible than with federal and college-based loans.
Before you take an education loan from a private loan provider you should compare the interest rates and fees that different lenders are offering. What you're looking for is the lowest cost loan that will meet your needs. You can find more information about the differences between federal and private loans at https://studentaid.ed.gov/types/loans/federal-vs-private.
INSTITUTIONAL LOANSTo find more information about whether your school offers institutional loans and details about any available institutional loan programs, contact your Student Finance department.
Colleges and universities may provide education loans, called institutional loans, from their own resources to students who enroll at the school. These loans may be available, for example, if the student's federal loans and other financial aid are not enough to cover the cost of attendance.
The institution can establish its own repayment policy and interest rate schedule as other private lenders can. Like other private loans, institutional loans are governed by the Federal Reserve Board's Regulation Z, known as Truth in Lending.
The cost of attendance (COA) is the amount a school calculates it will cost you to enroll for an academic year. It includes the cost of tuition, books, room, board, and other expenses. The school uses its COA to determine each student's federal financial award. It's very possible that your actual costs could be more or less than the COA the school uses. In that case, you should ask about returning the extra to reduce the amount you will have to pay back.