Financing your college dreams can turn out to be quite an experience. Understanding all the different options available from scholarships to grants to federal student loans and private student loans can be daunting and difficult to navigate for both students and parents. This article talks in depth about alternative student loans.
What are Alternative Student Loans?
Alternative student loans are another way of referring to a private student loan. Alternative student loans unlike federal student loans are not funded or guaranteed by the federal government. It is private financial institutions that lend money for an alternative student loan. Banks and credit unions readily spring to mind. Most students look at federal student loans as the main source for lending and this is why student loans from banks and credit unions are sometimes called as alternative student loans. Private student loans is the only alternate option to a federal student loan. Many students find themselves ineligible for federal aid since most federal student loans are need based or face a shortfall in their finances even after being approved for a scholarship or grant or a federal student loan.
When should I apply for an Alternative Student Loan?
Funding for your college must always begin with scholarships and grants. Make sure you search and apply to all eligible grants and scholarships. Scholarships and grants score over student loans any day simple because they do not have to be paid back by the student. Only when all possible avenues for scholarships and college grants have been exhausted should you turn your attention to a loan.
Even with loans your first port of call must be with federal student loans. There are some excellent loans such as the Stafford loan and the Perkins loan that comes with very low rates of interest and often are subsidized thereby allowing the student to go through college without paying any interest on the loan and only start the loan payments after graduation and that too after a deferment period of anywhere between 6 – 8 months.
You should only consider an alternative student loan if you have exhausted all the above options and still need additional funds to cover any shortfall. The interest rates for an alternative student loan will be higher than that of a federal loan and is completely dependent on the student’s credit worthiness, credit score and credit history.
How do I apply for an Alternative Student Loan?
Applying for an alternative student loan is pretty straightforward. Unlike federal aid where you have to fill out the FAFSA application to begin a lengthy process, alternate student loans usually have a short application process and most of it can be done online. A credit check is usually mandatory and if you have no credit or bad credit then applying for a student loan with a cosigner might be an option to consider.
Alternative Student Loan tips
- Do not apply for an alternative student loan simply because you can. Borrowing money when you don’t need it can prove to be very costly.
- Alternate student loans must always be your last option for funding your education.
- Applying with a cosigner might help you negotiate better loan terms than applying for an alternate loan without a cosigner.
- Research your lender and their lending policies thoroughly.
- Check if your lender offers loan deferment and loan forbearance options.
While there are many banks and other financial institutions out there, take your time, understand all the pros and cons and only go ahead with a loan if you are comfortable with the lender, the rate of interest and other loan terms and options.
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