Private/alternative student loans are unsecured non-federal education loans from private commercial lending institutions for creditworthy borrowers. Alternative student loans usually have higher interest rates than federal loans. However, the interest rates on these loans can be lower than conventional credit products such as personal loans and credit cards.
Before applying for a private loan, you should apply for financial aid, and should explore your Federal Direct Loan options. For most borrowers, the federal loans offer lower interest rates and overall financing costs. If you have excellent credit, you may be able to borrow a private loan with a better interest rate, making it worthwhile to carefully compare your federal and private loan options. If the student applied for aid as a dependent student, his or her parent can apply for a Federal Parent PLUS Loan for undergraduate students before looking at other options.
As with all borrowing, students and parents must carefully consider the terms of an alternative student loan before borrowing.
Some of the questions you should ask include:
Many lenders have alternative student loan options. Check with your bank or lending institution, or search the Web for “alternative student loans” to find information on participating lenders, application requirements, interest rates, loan limits and repayment options.