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Scholarships & Aid

Alternative Loans Can Be The Difference

So, you calculated your Expected Family Contribution (EFC) -- and if you haven't you should -- and your results indicate that the government will assume you can spend about $20,000 a year on college out-of-pocket. Sure no problem, you think to yourself, as long as you and your family all agree to only eat every other day. Don't panic, there is still hope of attending the school you have your heart set on. It might be time to explore alternative loans.

Alternative loans, also called private loans, are designed to help you meet your financial need beyond the funds schools allocate in financial aid packages. They can also be the difference in your ability to pay for the schools you most want to attend. Whenever you apply for financial aid, the school's Financial Aid Officer (FAO) will use the federal methodology (the formula we use in our EFC calculator) or the institutional methodology (believe it or not, the institutional formula is even more complex than the federal) to determine the size of your financial aid package. If the government determines you have an EFC of $20,000 a year for school out-of-pocket, the school will make up the remainder of the tuition with an aid package consisting of federal loans, grants, work study and/or scholarships. However, if you can't meet that expected family contribution number to start with, alternative loans make up the difference.

Alternative loans are loans lent by banks, credit unions and private lending companies rather than the federal government and are specifically for education purposes. Many alternative loans mimic federal Stafford loans and are below market rate. The research required to gauge the value of the scores of companies offering alternative loans can be daunting, but take heart: We've saved you that research time. Our selected lenders offer a comprehensive range of loan types to suit a variety of needs.

When choosing which type of loan to take out, you should consider all of the following questions:

When choosing which type of loan to take out, you should consider all of the following questions:

• Is a credit check required.

• What is the interest rate and how is it determined?

• What financial index is the interest rate based on?

• Is the interest rate fixed or variable, and if variable, is there a cap?

• What are the repayment options? How many years will it take to pay off the loan? Can you make interest-only payments while the child is in school? Can you repay the loan early?

• Are there origination or any other kind of fees?

• Is a cosigner permitted or required?

• Will having a cosigner affect the interest rate and/or origination fees?

• Is the loan secured or unsecured? The rates on a loan secured by the home or by securities are generally lower, but you are putting your assets on the line.

• Is the interest on the loan tax deductible?

• When does repayment begin?

As a registered user who has opted to receive offers directly from lenders, you'll be contacted by lenders with offers tailored to suit your personal education profile. If you have not yet opted to allow lenders to contact you, do yourself a favor and sign up now.