A lot of the government student loan programs do not need a credit check to be carried out and will provide students with significant financial aid. However these programs are based upon need and frequently carry other criteria that may make it hard to qualify. Even when a student does qualify, the loans will only cover part of the whole education bill in the majority of cases. When students are caught in this situation then they may turn to private alternative education loans to make up the shortfall.
However, private alternative educational loans also have their difficulties. A credit check is almost universally required and this is fine as long as you have a good credit history. The problem is that 'good' is a relative term and if it is not good enough then you might find yourself paying higher than the standard rates of interest.
Beyond the stated interest rate there are additional financial implications of private alternative loans. Fees are usually added on to nominal loan amounts and a quite modest loan of $3,000 could easily have 4% in fees applied prior to distribution. This means that $120 of the total loan will never be seen by the student but nonetheless has to be repaid. As a very rough guide, 3% in fees is equivalent to an additional 1% on top of the quoted interest rate.
Private loans do have one or two advantages.
The first and perhaps the most obvious advantage is that money is available. Private lenders make their money on the interest and fees that they charge and so have an interest in making money available to borrowers and will try hard to ensure that each and every applicant qualifies for a loan. By contrast Federal lenders adhere to a rigid set of criteria and there is generally no real appeal if your loan application is denied.
Not having to deal with that frosty and all too frequently irrational bureaucracy is another advantage of private loans. Alternative lenders operate customer service departments that are there to answer queries so that customers can get the answers that they are looking for. Federal loan programs generally have contacts and help available as well but the answers one gets are more miss that hit when it comes to quality.
Other practical things that make private alternative loans particularly desirable include:
The fact that neither parents nor students have to fill out FAFSA (Free Application for Student Aid) forms and supply a mass of supplemental documentation. Private loan applications are a lot simpler and indeed the whole process is easier. Neverthless, interest rates and fees might be higher or lower depending on the particular loan program.
The most sought after private loans have no fees and rates of interest that are approximately equal to the prime rate. The 'prime rate' is the rate that banks charge one another or charge their biggest and most favored customers. Getting a rate at prime is a 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 to apply for the loan with a co-signer who has a very good credit history.
At the end of the day, the best way to discover whether or not an alternative loan will suit your purposes is to go out into the market and take a look at just what is available.
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