Private Alternative Loans for Graduate Students

Private loans offer another mechanism for students to finance the costs of graduate education. As a general rule, these loans are more expensive in the long run than the Federal Student Loans.  Remember, with the creation of the federal "Grad PLUS" Program, students can borrow the difference between their "estimated cost of attendance" and all other aid received.

We strongly encourage all students to first apply for federal student loans before utilizing these programs .

In order to comply with recent legislation aimed at providing increased consumer protections to students, borrowers who do not currently have a Free Application for Federal Student Aid ("FAFSA") on file with our office, will need to complete a certification form before we will process a private, credit-based alternative loan.

Impact of the Higher Education Opportunity Act (HEOA) of 2008

The Higher Education Opportunity Act of 2008 mandated a number of significant changes to provide a significant amount of additional information to families who choose to utilize private educational loans.  The regulations change the disclosure requirements for the Truth In Lending Act ("TILA")  for non Title IV  education loans made expressly for post-secondary education expenses. (Loans made under Title IV of the HEOA include Federal Stafford, Federal Perkins and Federal Grad PLUS Loans).

These regulations will go into effect on February 14, 2010.  

Choosing a Lender:

We would encourage students who decide to utilize this funding source to review some very valuable information on The Project on Student Loan Debt's website , especially their "Questions to Ask About Private Loans" and the section on "Private Loan Policy Agenda"

You should also review a summary of questions you should ask before borrowing. This information is from the Consumers Union.

Student Lending Analytics maintains a list of lenders currently offering private alternative loans. . The SLA web site breaks down the complexity of alternative loans into a plain English  format . They have also posted a series of short articles to help guide students through the loan process

Students can choose to utilize any lender that best meets their needs. The following links are to lenders that currently allow us to electronically certify loan applications and electronically receive loans disbursements. Students who choose a lender that is not on this list will need to submit all appropriate paper applications to the Office of Scholarships and financial Aid for certification.

Interest Rates:

Private Lenders can choose between a number of different options in choosing how they will assess the interest they will charge you for your loan. BankRate.com lists most of the major indexes including

  • Prime Rate - The prime rate is defined by The Wall Street Journal (WSJ) as “The base rate on corporate loans posted by at least 75% of the nation's 30 largest banks.” It is not the ‘best' rate offered by banks. The WSJ is used as the official source of the prime rate. Many (if not most) lenders specify this as their source of this index. The prime rate does not change at regular intervals. It changes only when the nation's “largest banks” decide on the need to raise, or lower, their “base rate.” The prime rate may not change for years, but it has also changed several times in a single year
  • "LIBOR" - LIBOR is an abbreviation for “ London Interbank Offered Rate,” and is the interest rate offered by a specific group of London banks for U.S. dollar deposits of a stated maturity. LIBOR is used as a base index for setting rates of some adjustable rate financial instruments, including Adjustable Rate Mortgages (ARMs).

Credit Issues:

Lenders wil look at your past history in repaying consumer debt in determining the interest rate that they will charge on a private student loan. Major lenders often utilize your "FICO" score. Read more about why your "credit score " is important

Direct to Consumer Loans

A growing number of private lenders are marketing private loans directly to students. These loan programs are set up to totally circumvent the financial aid office.

The Department of Education has ruled that these loans must be counted as a resource in determining a student's eligibility for federal financial aid funds. If we discover you have received one of these loans, we will have to adjust your financial aid award to incorporate this loan into your package. This would normally result in the loss of "better" aid funds (need-based grants and scholarships and government subsidized loans). Please speak with your counselor BEFORE pursuing this option.

Peer to Peer Lending Programs

These new programs are starting to receive coverage in the media. Families should CAREFULLY review the terms of loans through any of these programs.

Companies Features in these Stories:

 

"Wall Street Reform" and Student Loans

 

 

 

Updated March 11, 2011