GUIDE
TO PRIVATE LOAN BORROWING
If you decide that you need to
use a private alternative loan to finance part of your educational expenses, we
ask that you speak to a financial aid counselor before applying . Who
can borrow a private loan? Students can borrow them to cover educational
expenses that parents are unable to contribute, parents can borrow them on behalf
of their daughter, and parents can so-sign on a loan their daughter borrows. What
is a private or alternative loan ? Alternative loans are private
educational credit-based loans made by a lending institution. These loans are
NOT federal loans and cannot be consolidated. A number of lenders provide
alternative loan options with different interest rates, fees, repayment schedules,
credit and income requirements. It is important to understand what you
are borrowing and what you will be expected to repay before you borrow.
When is a private loan the right loan ? Private
loan borrowing should be your last resort after you and your family have spoken
with the financial aid office and considered payment plan options and PLUS loans.
Typically, private loans are more expensive than federal loan programs. They are
also less flexible with repayment, and can carry additional fees. All federal
loan program loan possibilities should be exhausted before considering a private
loan. This means, if your parent will consider borrowing a PLUS to cover expenses,
this is a much better option. How is interest calculated? The
interest on private loans is calculated using either 3-month LIBOR
or Prime Rate . Many lenders then add a percentage increase to
that rate based on credit standing. Current LIBOR and Prime Rates can be
found at www.interestonlyloans.com
. Should I have a co-signer? Some private
loans are not available to full-time students without a co-signer so you should
check to see if one is required before you apply. If one is recommended,
but not required, a cosigner can often reduce the rates and fees charged by the
lender-- especially if the co-signer has good credit. Credit All
private loans are credit-based loans, meaning the lender will perform a credit
check on the borrower as well as on any cosigner. Whether a loan is approved
or not is often based on your credit score (and the credit of your co-borrower).
Level of fees and interest rate can also be based on credit. It is important
that you do not apply for many loans at once, or apply for a loan for which you
will not qualify. This will only damage your credit score. Consult with
a financial aid counselor to make your best attempt for a private loan the first
time around. This will minimize the impact on your credit. (Back
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