Alternative Student Loans

Alternative student loans are a credit-based student loan product used to cover college costs. Free money, such as scholarships and grants, and federal loans should always be used first before considering alternative student loans. Students commonly use these loans to cover expenses such as tuition, books, lab fees, personal computer, college travel, and living expenses.

Alternative student loans are made in the student's name, and can be used by both undergraduate and graduate students. Generally, students do not have to pay back alternative loans until after leaving school.

Why use alternative student loans?

Many students receive scholarships and grants, but they don't often cover 100% of college costs. In addition, most students are eligible to borrower federal student loans regardless of financial need, but the government caps borrowing amounts based on your year in school. Once free money and federal loans have been exhausted, many students must look to alternative student loans to fill the gap.

How do alternative student loans work?

Students must apply for alternative student loans through a qualified alternative loan lender. Each lender uses their own set of criteria to qualify students for a loan. Most students without sufficient income or credit history will need a credit-worthy co-signer to get approved for alternative student loans.

Why are most alternative student loans school certified?

Most alternative student loans today are school certified, meaning that your lender will work with your school to verify your enrollment and the loan amount needed. Once your loan is approved, the funds will then be delivered to the school. Working with your school to verify your enrollment reduces fraud potential and protects your identity. It also encourages financial responsibility between the school and the student, by preventing students from taking out more in loans than their total cost of attendance at the school.

How has the current economic environment impacted alternative student loans?

The recent economic downturn has created a tight lending market for alternative student loans. Some banks and lenders have been forced to stop making alternative student loans entirely; others have tightened credit criteria for loan applicants. If you are trying to get approved, the best advice in the current environment is to find a co-signer with a good credit history and documentable income. See our Finding a Co-signer section for more information.