Many of the government student loan programs require no credit check and will provide students with significant financial assistance. These programs are however based upon need and frequently carry other criteria which might make it hard to qualify. Even if a student does qualify, these loans will only cover a portion of the total cost of education in the majority of cases. When students are caught in this position then they can turn to private alternative education loans to meet the difference.
Private alternative student loans too have their own difficulties. A credit check will almost always be required and this is not a 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 higher than the normal rates of interest.
Beyond the stated interest rate there are further monetary implications of private alternative loans. Fees will usually be tacked on to nominal loan amounts and a fairly small loan of $3,000 could easily have fees of 4% applied before distribution. That means $120 of the total loan is not seen by the borrower but nevertheless must be paid back. As a guide, every 3% of fees is equivalent to an additional 1% added to the stated interest rate.
However private loans do have one or two advantages.
The first and maybe the most obvious one is that money is available. Private lenders make their living on the interest and fees which they charge and so have a vested interest in making money available to borrowers and they will try very hard to see that each applicant qualifies for a loan. Federal lenders by contrast have an inflexible set of criteria and there is frequently no real appeal if your loan application is denied.
Not having to deal with that impersonal and all too frequently irrational bureaucracy is another benefit of alternative loans. Alternative lenders have customer service departments which are there specifically to answer queries so that customers can get the answers which they need. Federal loan programs typically have contacts and help available as well although the answers you get are more miss that hit when it comes to quality.
Other practical things that make private 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. Alternative loan applications are far simpler and the whole process is easier. Nonetheless, fees and interest rates might be lower of higher depending on the specific loan program.
The best alternative loans carry zero fees and rates of interest which are roughly equal to the prime rate. The 'prime rate' is the rate that banks charge one another or charge 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.
In order to get this 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 best way to discover whether or not an alternative loan will satisfy your requirements is to go out into the marketplace and see exactly what is on offer.
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Frequently Asked Questions
Defaulting on student loans?
By: Maggie31053 | 17-06-2008
I co-signed for my daughter's student loans which she now cannot afford to pay. I cannot either as I was recently unemployed and am still in debt. I do own my home, the only asset I have, and I am afraid that I will lose it because my daughter is defaulting. How can I protect it, or should I sell it and rent somewhere?
Can I write off my student loans on my taxes?
By: Lane | 27-03-2008
Can I write off my student loans on my taxes? What do I have to do in order to accomplish this?
Can someone staying outside uk apply for private ...
By: talk2dekky | 12-10-2007
can someone staying outside uk apply for private loans to study in any country.
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