Private College Loans Are Usually Needed In Addition To Federal Funding

By Author: Donald Saunders
Total Articles: 84
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Most of the government student loan schemes require no credit check and will provide a student with significant financial help. These programs are however need based and generally carry additional criteria which can make it hard to qualify. Even if a student does qualify, these loans will only cover part of the total education bill in most cases. When students find themselves in that situation then they could look to private alternative student loans to make up the difference.

Private alternative educational loans too have their own set of pros and cons. A credit check will almost always be required and this is no problem as long as you have a good credit history. However 'good' is very much a relative term and if your credit history is not good enough then you may find yourself paying higher than the standard interest rates.

As well as the stated rate of interest there are further monetary implications to private alternative loans. Fees will normally be added on to nominal loan amounts and a reasonably modest loan of $3,000 could easily have 4% in fees added prior to distribution. That means $120 of the total ...
... loan is never seen by the borrower but nonetheless must be repaid. As a rough guide, every 3% of fees is equivalent to an additional 1% added to the normal interest rate.

Private alternative loans do have some advantages.

The first and probably the most obvious advantage is that funds are readily available. Private lenders make a profit from the interest and fees which they charge and so have an interest in making funds available to borrowers and they will work very hard to ensure that each and every borrower qualifies for a loan. On the other hand government lenders are bound by a rigid set of criteria and there is normally no appeal if your loan application is rejected.

Avoiding that frosty and frequently irrational bureaucracy is another advantage of private loans. Private lenders maintain customer service departments which are there specifically to answer questions so that customers can get the answers which they are looking for. Federal loan schemes usually have contacts and help available too although the answers you get are more miss that hit in terms of quality.

Other practical considerations 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 supply a mountain of supplemental documentation. Alternative loan applications are a lot simpler and the whole process is easier. But, fees and interest rates could be higher or lower according to the particular loan program.

The best private loans carry no fees and interest rates which are roughly equal to the prime rate. This is the rate that banks charge each other or charge their largest and most favored customers. Getting a rate at prime is a very good deal and getting a rate at 1% below prime is a truly great deal.

In order to obtain that sort of loan it is normally necessary to have an excellent credit history or have a co-signer who has an excellent credit history.

In the end, the only way to discover whether or not an alternative loan will meet your needs is to get out into the marketplace and take a look at just what is available.