Private Education Loans To Supplement Federal Funding
Most of the government student loan programs do not require a credit check to be carried out and provide students with significant financial aid. These programs are however need based and usually carry additional criteria that may make it hard to qualify. Even when a student does qualify, the loans only cover a portion of the whole cost of education in many cases. When students are caught in this position then they could look to alternative student loans to make up the shortfall.
However, alternative educational loans also have their pros and cons. A credit check will almost always be required and this is no problem as long as you have a good credit history. The problem is that ‘good’ is very much a relative term and if it is not good enough then you will find yourself paying more than the normal rates of interest.
In addition to the stated rate of interest there are further monetary implications of alternative loans. Fees will normally be added on to nominal loan amounts and a relatively modest loan of $3,000 might easily have 4% in fees added before distribution. That means that $120 of the total loan is not seen by the student but nonetheless must be paid back. As a very rough guide, 3% in fees is equivalent to an additional 1% added to the stated interest rate.
However private alternative loans do have a couple of advantages.
The first and perhaps most obvious one is that money is 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 they will work very hard to ensure that every borrower qualifies for a loan. Federal lenders on the other hand are bound by an inflexible set of criteria and there is usually no real appeal if your loan application is turned down.
Not having to deal with that cold and frequently irrational bureaucracy is another advantage of alternative loans. Private lenders have customer service departments that exist to deal with queries so that customers can get the answers that they need. Government loan programs generally have contacts and help available as well but the answers you get are hit or miss when it comes to quality.
Other practical features that make alternative loans particularly desirable include:
The fact that parents and students do not have to fill out FAFSA (Free Application for Student Aid) forms and provide a mountain of additional documentation. Private loan applications tend to be far simpler and the entire process is easier. But, interest rates and fees could be higher or lower according to the individual loan program.
The best private loans have zero fees and rates of interest that are roughly equal to the prime rate. The ‘prime rate’ is the rate that banks charge one another or their biggest and special customers. Getting an interest rate at prime is a very good deal and getting a rate at 1% below prime is a truly great deal.
To get that type of loan it is usually necessary to have a great credit history or to apply for the loan with a co-signer to the loan who has a very good credit history.
Finally, the only way to find out whether an alternative loan will satisfy your requirements is to get out into the marketplace and take a look at exactly what is available.