Private Alternative Loans for Undergraduates
Private alternative loan programs have grown in popularity in recent years. However, we firmly believe that families should exhaust their eligibility for all federal loan programs before turning to this resource. In almost all cases, Federal Student Loans will provide the consumer with more beneficial terms and conditions, including a lower annual percentage rate charged on the principal and fewer and lower fees.
- Facts You Didn't Know About Private Student Loans
- Assessing the Damage of Privare Loans --July 20, 2012
- Consumer Financial Protection Bureau publishes private student loan borrower comments:Bureau Enlists State Attorneys General to Provide Information on Private Student Loan Complaints---June 13,2012
In This Section:
No FAFSA Certification
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 an institutional certication 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 ( HEOA)mandated a number of significant changes to provide a significant amount of additional information to families who choose to utilize private educational loans. Title X of the HEOA , which originally began as the Private Student Loan Transparency and Improvement Act of 2007 change the disclosure requirements for the Truth In Lending Act ("TILA") for private education loans made expressly for post-secondary education expenses.
These regulations will go into effect on February 14, 2010.
- Learn more about these important changes and the impact they will have on processing time for these loans.
Families are free to choose any lender which best serves their needs. You should visit each potential lender's web site to fully evaluate the benefits that they offer before making a final choice of a lender for your loans.
- Review Be Wary of Private Student Loans (August 14, 2009)
- Review Private Loans :Facts and Trends (August 2009) from the Project on Student Debt
- Review a summary of questions you should ask before borrowing.
- FinAid:The Smart Student Guide to Financial Aid provides a comprehensive overview of how these programs generally operate as well as a detailed comparison chart for the major loan programs. Their Loan Analyzer Calculator will help families compare the terms of different loan programs.
- 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
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).
View a report on the average interest rate on a private student loans.
Your "credit score" will often determine whether or not a lender will be willing to extend credit to you. Read about "Why Your Credit Score Is Important"
These new programs are starting to receive coverage in the media. Families should CAREFULLY review the terms of loans through any of these programs. We would again encourage families to fully utilize all federal aid programs before turning to this source of funds.
- "The Latest Twist in Student Loans" - published in the May 13, 2008 issue of Business Week
- "Peer Lenders: A Last Resort for Student Loans" published in the Apri 25, 2008 issue of Smart Money
- "Matching Borrower With Lender, Social-Network Style" published in the August 12, 2008 issue of Inside Higher Ed
- Companies Features in these Stories:
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. Legitimate lenders should be following basic standards in their dealings with families.
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.
Updated July 20, 2012