Alternative Student Loans
Alternative student loans are a credit-based student loan product used to cover college costs. Free money, such as college scholarships and grants 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 student 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 student loan lender. Each lender uses their own set of criteria to qualify students for a loan. Students without sufficient income or credit history will likely 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 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. It also helps mitigate the risk of student loan fraud.
How has the current economic environment impacted alternative student loans?
The recent economic downturn has created a tighter lending market for alternative student loans. Some banks and lenders have been forced to stop making alternative student loans entirely; others have tightened their loan application underwriting criteria. If you are trying to get approved for a loan, the best advice in this current environment is to ensure you have current income and a very good credit history and/or find a co-signer with a good credit history and documentable income. See the following sections for more information:
How can I apply for an alternative student loan?
First, check with your school’s financial aid office to see if they publish a list of recommended alternative student loan lenders. You can also search the internet for alternative student loans and find a lender and a product that fits your needs. Check out our alternative student loan lending site, www.collegeloan.com.