Thinking Differently with Alternative Student Loans

Paying for college can be daunting at best. I mean, unless your parents saved since the time you were born, you are going to have to apply for financial aid and perhaps even take out a loan. Alternative student loans are a great option to pursue if all other options have been exhausted.

The term “alternative student loans” is often interchangeable with “private student loans.” The word “alternative” is used because the most typical method of borrowing money for college is through federal loans that are guaranteed to some extent by the government. Federal loans are based on need, primarily. Alternative student loans, on the other hand, are based on your creditworthiness and the total amount your college education will cost.

When Should I Get An Alternative Student Loan?

Alternative student loans can definitely help you pay for college, but they are not the absolute best way to do so. You should only apply for a private loan if you have already utilized every federal resource available. You should file the FAFSA and see if you qualify for grants, which you don’t have to pay back, by the way. If a grant won’t cover all of your costs, see if you qualify for the Federal Stafford Loan, the Federal Perkins Loan or the Federal PLUS Loan. If you are going to graduate school, a program for you will be the Graduate PLUS Loan. Each of these is guaranteed to have lower interest rates than that of private loans. If you qualify for any federal loans and you have a need for the money, you should accept them.

Now, if after getting a grant and a federal loan you still cannot afford college, then and only then should you apply for an alternative student loan.

Aspects of Alternative Student Loans

Private student loans differ quite a bit from federal student loans. Federal loans require you to fill out the FAFSA before qualifying and that you have a certain level of need. Federal aid requires that you fall within a certain income bracket and that you have never defaulted on a student loan before. The interest rates are also significantly lower on federal student loans and many times you can get them subsidized.

Alternative student loans are instead backed by student loan companies such as Wells Fargo, Bank of America or Citibank. A private student loan is based on your credit score and this can be a bit of a roadblock, especially for students straight out of high school with little to no credit history. However, this can easily be dealt with by using a cosigner. A cosigner is a parent, guardian or other trusted individual that is willing to put their name on your loan and be responsible for payments should you fail to make them. Getting a cosigner will not help at all if the person does not have a better credit score than you. However, if they do, it will help to lower the interest rate and help you get a better repayment plan. There are usually cosigner release programs as well that makes it so your cosigner can get out of being on the loan after a designated period.

Alternative Student Loan Tips

Here are a few tips in regards to getting an alternative student loan.

  • Never borrow money you don’t absolutely need. Alternative student loans have higher interest rates than federal loans so you will end up paying more money back on a private loan. Make sure you need the money!
  • Be selective in the lender you choose. Don’t just rush into it. You need to find a lender that will give you the best interest rate, the lowest fees and the best repayment plan possible. Failing to look at these items will only cause you to go deep into debt come graduation.
  • Look for good deals. A lot of alternative student loan companies are competing for your business these days so let them work! Try to borrow from a company that will provide discounts on your interest rate after so many years of consistent payments. Also look for discounts if you opt to have your payments directly transferred from your checking account.

Just be observant. A loan is a big thing and it will be a part of your life for quite some time. Make sure you are comfortable with your decision.