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Private Education Loans To Supplement Federal Funding

Written by Donald Saunders

Monday, 01 September 2008 14:29

by DonaldSaunders

Many of the government student loan schemes do not need a credit check to be done and provide a student with substantial financial assistance. But these programs are need based and normally carry additional criteria that may make it difficult to qualify. Even if students do qualify, these loans only cover a portion of the total education bill in the majority of instances. When students find themselves in that situation then they could turn to alternative student loans to make up the shortfall.

Private alternative educational loans too have their own set of problems. A credit check is almost universally required and this is no problem 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 will find that you are paying more than the standard interest rates.

As well as the quoted interest rate there are additional financial implications of private alternative loans. Fees are normally added on to nominal loan amounts and a reasonably modest loan of $3,000 can easily have fees of 4% applied prior to distribution. That means $120 of the total is never seen by the student but nonetheless had got to be paid back. As a rough guide, 3% in fees is equivalent to 1% on top of the stated interest rate.

However private alternative loans do have a couple of advantages.

The first and perhaps most obvious one 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 funds available to borrowers and they will work very hard to ensure that every borrower qualifies for a loan. Federal lenders on the other hand are bound by an inflexible set of criteria and there is usually no real appeal if your loan application is turned down.

Not having to deal with that cold and all too frequently irrational bureaucracy is another benefit of alternative loans. Private lenders maintain customer service departments which are there specifically to deal with questions so that customers can get the answers which they need. Federal loan schemes generally have help available too but the answers one gets are hit or miss in terms of quality.

Other practical features that make private alternative loans especially desirable include:

The fact that parents and students do not have to fill out FAFSA (Free Application for Student Aid) forms and provide a mountain of additional documentation. Private loan applications tend to be far simpler and the entire process is easier. But, interest rates and fees could be higher or lower according to the individual loan program.

The best alternative loans have zero fees and rates of interest which are about equal to the prime rate. This is the rate that banks charge one another or their biggest and most favored customers. Getting a rate at prime is a very good deal and getting a rate at 1% below prime is a great deal.

To get that type of loan it is usually necessary to have a great credit history or to apply for the loan with a co-signer to the loan who has a very good credit history.

In the end, the only way to discover whether or not an alternative loan will satisfy your requirements is to go out into the market and take a look at precisely what is available.

About the Author:

Visit TheStudentLoansCenter.com for information about college funding including finding alternative student loans for bad credit

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