Private Alternative College Loans Are Generally Required In Addition To Federal Funding
Most of the Federal student loan programs need no credit check to be carried out and provide students with significant financial help. But these programs are need based and usually carry other criteria which might make it difficult to qualify. Even if students do qualify, these loans will only cover part of the total cost of education in many cases. When students are caught in this position then they can look to alternative education loans to meet the difference.
Private alternative college loans too have their own pros and cons. A credit check is almost universally required and this is not a problem as long as you have a good credit history. But ‘good’ is a relative term and if it is not good enough then you might find that you are paying more than the normal interest rates.
On top of the quoted rate of interest there are additional monetary implications to alternative loans. Fees will often be tacked on to nominal loan amounts and a relatively small loan of $3,000 can easily have fees of 4% added before distribution. This means $120 of the total loan will not be seen by the borrower but nonetheless has to be repaid. As a rough guide, every 3% of fees is equivalent to 1% being added to the normal interest rate.
However private alternative loans do carry one or two advantages.
The first and maybe most obvious advantage is that money is readily available. Private lenders make their money on the interest and fees that they charge and so have an interest in making funds available to borrowers and will try hard to ensure that each applicant qualifies. On the other hand Federal lenders have a rigid set of criteria and there is frequently no appeal if your loan application is turned down.
Not having to deal with that impersonal and all too frequently illogical bureaucracy is another advantage of alternative loans. Lenders have customer service departments which exist to deal with questions so that borrowers can get the answers that they are looking for. Federal loan schemes often have contacts and help available as well although the answers you get are hit or miss in terms of quality.
Another consideration which makes private alternative loans particularly desirable is the fact that students and parents do not have to fill out FAFSA (Free Application for Student Aid) forms and supply a mountain of additional documentation. Alternative loan applications have a tendency much simpler and indeed the entire process is easier. However, fees and interest rates might be higher or lower depending on the particular loan program.
The most desirable alternative loans will have zero fees and interest rates that are roughly equal to the prime rate. This is the rate which banks charge one another or their biggest and favorite customers. If you are able to find an interest 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 normally necessary for you to have an excellent credit history or to apply for the loan with a co-signer who has a very good credit history.
When all is said and done, the only way to discover whether or not private low interest student loans will meet your needs in terms of college financing is to get out into the market and see precisely what is on offer.
Tags: college loans, scholarship, student loans, college funding, pell grants, , college grants
