Private/Alternative Loans

Private/alternative loans through lenders are designed for students attending a college or university. Be a wise borrower! Apply for financial aid first by completing the FAFSA at www.studentaid.gov - you may be eligible for more favorable types of financial aid, such as grants, scholarships, work-study or federal loans.

Before selecting a private/ alternative loan, be sure you have maximized your eligibility for federal loans by completing the FAFSA. Federal loans are often less expensive and offer better borrow benefits. Then, keep your costs down by looking for lenders who:

• have competitive rates
• provide responsive customer service
• offer straight-forward communication
• appear student-focused

Sometimes, it is hard to separate the good guys from the bad guys. You can steer clear of trouble by avoiding lenders who:

• have escalating rate clauses
• discourage you from working with your financial aid office
• advertise introductory rates
• claim you can apply and receive your money immediately
• charge high or hidden fees
• use asterisks and fine print

Finding a Private/Alternative Loan

Searching for private/alternative loans can be overwhelming. We recommend using a reputable online search engine such as Google, Bing, or Yahoo. Searching for “private alternative loans” or “private alternative student loans” provides a plethora of important and useful information. Be a good consumer and compare information on private/alternative loans before applying. Below is a list of important questions for you to consider when researching your options.

Sound confusing? Let us help you understand the terms.

What is an interest rate?

The interest rate calculates how much you will pay to borrow money. Your interest rate will be based on either the prime rate or LIBOR, which is the rate your lender pays to borrow money. So, your interest rate is calculated by adding an additional percentage to the prime rate, depending on your credit worthiness. Most private/alternative loan lenders will be able to give you a range of rates, before prime. The current prime rate can be found in newspapers like the Wall Street Journal. It is also important to ask your lender when and how they adjust rates because as the prime interest rate rises, so does your total repayment amount. Some lenders may adjust rates monthly, others quarterly.

Why do I need a cosigner?

Many loan lenders will give you a break on your interest rate if you apply with a credit-worthy cosigner. This person becomes responsible for your loan if you should fail to make your payments. If you apply with a cosigner, be sure to ask about cosigner release. Some lenders will release your cosigner after a set number of on-time payments.

What fees should I look for?

Lenders all assess fees differently. Some may charge an application fee, while others charge an origination fee. The bottom line: you need to know about all fees up front, so you can compare lenders and make a choice based on the total cost of the loan.

What is the difference between annual and aggregate loan limits?

Lenders cap the amount of money you can borrow. Most lenders will have not only an annual limit, meaning you can only borrow so much per year, but also an aggregate or overall limit. This number is the maximum amount you can borrow for your education.
It is important to know your lender's aggregate limit and how it impacts your program of study. Some loan lenders may offer a higher aggregate limit for more costly programs.

What are borrower benefits?

Some loan lenders may offer perks that reduce the overall cost of your loan. Look for programs like direct debit. Many lenders will reduce your interest rate if you sign you to have your loan payments automatically deducted from your bank account. Other programs to ask about are cosigner release, e-billing, and rate reductions for on-time payments.

What about repayment?

You need to find out if your lender will defer payments, and for how long. Most lenders give you a six-month grace period after college, before having to repay your private/alternative loan. You also need to find out how long your repayment term will be. This will vary, and will impact the cost of your loan. A longer repayment term may give you lower monthly payments, but it may increase the amount of interest you pay. You should also ask about consolidation - can your Federal loans be consolidated with your private loans?
You will also want to find out if your lender will sell your loan to a third party. These factors can affect your total cost.

What if I cannot pay?

Be sure to ask if your lender offers any kind of deferment or forbearance options in case of unemployment, the birth of a child, or financial hardships. In some cases, you may be able to delay repayment.

What else do I need to know?

Before borrowing, consider these tips:

• Create a budget of your daily expenses and your total education costs.
• Be creative and keep costs down so you can borrow as little as possible.
• Determine your monthly loan payment and be sure your anticipated salary after college will be enough to cover your living expenses.

What penalties should I ask about?

You want to know about all penalties and fees associated with your loan. Ask if your lender will charge you a penalty for paying off your loan early. Find out what the late fees are, and how a late payment will affect your loan.

Certification

Once a student has been credit-approved by the lender and submitted all documents requested by the lender, the lender will contact the school. Loans must be certified through the school. The school will verify the student’s enrollment status, loan period, disbursements dates, and the amount requested by the student.

We will certify a private/alternative loan application from any lender you choose. Still not sure? We are here to help. Stop in the Financial Aid office, call 269-488-4340, or send an e-mail to finaid@kvcc.edu.