Private Student Loans Are Frequently Necessary In Addition To Government Funding
By:
Donald Saunders
Most of the Federal student loan schemes do not require a credit check and will provide students with significant financial aid. These programs are however based on need and normally carry other criteria that might make it difficult to qualify. Even if students do qualify, these loans will only cover part of the total education bill in the majority of instances. If students find themselves in that situation then they can turn to private alternative student loans to make up the difference.
However, private alternative educational loans also have their pros and cons. A credit check will almost always be required and this is fine as long as you have a good credit history. The problem is that 'good' is very much a relative term and if your credit history is not quite good enough then you will find that you are paying higher than the optimal interest rates.
Beyond the stated rate of interest there are additional financial implications to private alternative loans. Fees are usually tacked on to nominal loan amounts and a fairly small loan of $3,000 might easily have fees of 4% applied before distribution. That means that $120 of the total will not be seen by the borrower but nonetheless has to be paid back. As a rough guide, 3% in fees is equal to 1% added to the quoted interest rate.
However private alternative loans do have a couple of advantages.
The first and maybe most obvious one is that money is readily available. Private lenders make their money on the interest and fees that they charge and so have a vested interest in making funds available to borrowers and will try very hard to ensure that each and every borrower qualifies. On the other hand Federal lenders are bound by a rigid set of criteria and there is usually no real appeal if your application is turned down.
Not having to deal with that unwelcoming and all too frequently illogical bureaucracy is another benefit of alternative loans. Private lenders have customer service departments that exist specifically to answer queries so that borrowers can get the answers that they need. Federal loan schemes frequently have contacts and help available as well but the answers you get are hit or miss when it comes to quality.
Other practical things which make private alternative loans particularly desirable include:
The fact that students and parents do not have to complete FAFSA (Free Application for Student Aid) forms and provide a lot of additional documentation. Alternative loan applications are a lot simpler and the whole process is easier. But, interest rates and fees may be higher or lower according to the particular program.
The most desirable alternative loans carry no fees and interest rates that are about equal to the prime rate. This is the rate which banks charge each other or their largest and most favored customers. If you can find an interest rate at prime then this is a very good deal and getting a rate at 1% below prime is a great deal.
In order to obtain this type of loan it is usually necessary to have an excellent credit history or have a co-signer who has an excellent credit history.
Finally, the only way to discover whether or not an alternative loan is going to meet your needs is to go out into the market and see exactly what is on offer.
