What is Private Education Loan? How are Private Loans Different? Know The Repayment Terms and Conditions, also called alternative loans
"What is Private Education Loan? How are Private Loans Different? Know The Repayment Terms and Conditions, also called alternative loans" submitted by SchoolGrantsfor Editorial Team and last updated on Monday 9th January 2012
Tuition increases during the last 20 years are forcing some families to rely on alternative financing to bridge the gap between available funds and school costs. Private loans are one of these alternatives. If you don't qualify for a federal loan, or if what you were awarded won't cover expenses, a private loan might work for you. Check with your school's financial aid office for a recommendation on a private loan lender recommendation.
What is "Private Loan/Personal Loan/ Alternative Loan"?
Private loans are offered directly from the lender that is not secured by any property. Uninsured educational loan funded by a lending institution. As opposed to federal educational loans that are insured by the government. Private loans are also called personal student loan or alternative loans. While these may be taken in replacement of federal (Stafford) loans, the most common use is as a supplement to Federal loan funds. Be careful when comparing different private loans. Fees and terms vary from loan to loan and aren't as easy to interpret as federal Stafford loans. Private loan calculator can help you make your decision.
How are Private Loans Different?
Private loans, also called personal loans, are different because they vary from loan to loan. Unlike Stafford loans, private loans aren't as easy to compare because loan terms can vary widely, even between similar looking loans. Private loans are not federal loans, and are often structured differently than federal loans:
- They may be tied to many different base index interest rates, prime rate, London InterBank Offered Rate (LIBOR), 52-week Treasury bill, or the 91-day Treasury bill.
- The spread or margin over the base index interest rate may fluctuate.
- Private loans may assess additional fees that can occur when the loan is taken out or when the loan moves into repayment.
- Private loans may be capitalized in different ways. Make sure you understand what is capitalized (interest and principal, or just the principal) and how often the loan is capitalized.
- Private loans are tied to your credit history.
- Your past credit, current employment, and debt-to-income ratio may be reviewed.
- You may be required to obtain a co-signer.
For more details check Federal Student Loans vs. Private Loans
Questions to Ask When Comparing Private Loans
Answers to the following questions will help you evaluate alternative loans and make the best choice for your borrowing needs.
- What are the minimum and maximum loan amounts?
- What credit considerations exist for this loan? How will my credit affect my loan?
- Are co-signers required for this loan?
- Under what conditions are co-signers required?
- If available, what options are available to release the co-signer at a later date?
- Are specific programs available by discipline or major that may reduce my final payment amount?
Interest Rate and Fees
- Does the spread or margin over the index rate fluctuate?
- What are the rates today?
- How often do these rates fluctuate?
- Based on this fluctuation, how is the loan affected? (Is the payment or term of the loan adjusted?)
- Is an "introductory rate" offered? How long is this rate, and how is the rate affected after the introductory period?
- Is there an interest rate cap?
- What is the rate on this loan today?
- What additional fees, interest reductions, or other incentives are offered during the life of the loan?
- How much are these, and when do they occur?
- Do these vary based on my credit, academic level, or whether or not I have a co-signer?
- When are late charges assessed and how much are these charges?
- How is my loan capitalized?
- Is my interest capitalized annually or only at repayment?
Repayment Terms and Conditions
- What are my payment options?
- Can interest-only payments be made while I'm still in school?
- What are the minimum and maximum terms and payment amounts?
- When do I begin payment?
- Is there a penalty for paying off the loan early?
- Does the lender offer combined billing of private and federal loans?
- Are grace periods, deferments, and/or forbearances offered? What are the terms and conditions for each? How is interest capitalized during these periods?
- Are there any benefits to obtaining both loan types if the private and federal loan are packaged together?
- Does the lender offer any other borrower benefits? What are the eligibility requirements for these? If a borrower can be disqualified for this benefit, what is the appeal process?
- Is the application process manual or electronic?
- What is the turnaround for credit decisions and disbursement of funds?
- What are the loan fund delivery options?
- How can I resolve problems? Does this occur in-person, via phone, on line, or by another method?
- Will I have access to my loan information via the Internet?
- Are these loans typically sold to other lenders? How does this cycle compare to Federal Stafford loans that are sold?
Personal student loans are another financial option you have available if you still have an outstanding balance on your cost of college bottom line. Personal student loans, not sponsored by the government, pay for higher education. The loans are most often used to cover costs of education beyond the amount given in federal financial aid. The use of personal student loans has grown rapidly over the years. Consider personal loans as a last resort, a subset of private student loans. This family of financial products is due some respect: approach them when you are completely apprised of their requirements and contingencies.
Sallie Mae offers three loans that could be considered personal student loans: Signature Student Loan, Tuition Answer Loan, and Signature Student Loan for Community College. These products illustrate the variety of financial products to which you could have access. Each is packaged with distinctive features and slightly different requirements designed to give you financial flexibility.
Find All Available Student Private Education Loans. Use this list for the most popular private student loans and private consolidation loans.