Alternative Loans: Selecting a Lender
Think FAFSA first. We strongly encourage students to file a Free Application for Federal Student Aid (FAFSA) to determine their eligibility for federal student aid. While there is a great range of private educational loans available, we advise students to check out Federal Direct Stafford Loans before considering alternatives. If you need to pursue a private loan, make sure you get all the facts.
Things to Consider: Get the Facts
- Who is the lending institution?
- Are they an established lender with a good track record?
- Will they keep the loan, or, if they sell it, to whom?
- Who will provide loan servicing after disbursement?
Although a student borrower or their family may have a relationship with a lender that provides educational loans, it is wise to shop around and compare loan products. In the current economic climate, the loan market has tightened considerably. Most loan decisions are not made at the local level, nor take into account whether a borrower-lender relationship exists. A Web search can help you compare private educational loan products. Look for sites that do not represent a single product and may provide unbiased information to assist in the search.
Interest rate and loan fees
- What type of interest rate is being offered?
- Can the interest rate change and, if so, how frequently?
- When and how often is accrued interest capitalized (added to the loan principal)?
- Is there a ceiling or “cap” on the rate? If yes, what is it?
- Are there prepayment penalties or fees?
Shop around for the best overall loan. Many lenders advertise only their best rates, a rate not all borrowers will qualify for. Research the loan terms and conditions and ask about the interest rate and loan fees and how they are determined. Loan fees can vary as well, so compare how the combination of interest rate combined with loan fees affects the “cost” of the loan.
Rule of thumb: The stronger an individual’s credit rating, generally the lower the interest rate and loan fees are, and having a co-signer can help even if it is not required. Ask the lender if they offer a co-signer release and, if they do, how to qualify?
- Are representatives easy to contact and are they knowledgeable?
- Will the lender be servicing the loan, and, if not, who will be?
- Is online account access available after the loan is issued?
Billing and repayment
- When will repayment begin?
- How much will the payment be?
- Are there different payment plans?
- How long is the repayment period?
- Are there allowable situations which qualify for “deferral” (postponement)?
- Are there borrower benefits or repayment incentives? If yes, how do you qualify? How could you lose these benefits?
Put it all together: make yourself a comparison chart based on your research.
|Things to Consider||Lender One||Lender Two||Lender Three|
|Interest rate & loan fees|
|Billing and repayment|