Alternative Loans
Many lenders offer additional, or "alternative," loans to students who need extra assistance paying for educational expenses not covered by federal loans, grants, and scholarships.
Private Loans: Comparing
It seems simple enough: you borrow money; you pay it back. Then you read about a private loan and realize it's not so simple. There's lots of small print, and it's confusing. And that's only for one loan - what happens when there is more than one loan to consider?
First of all, don't panic. All private loans have basically the same characteristics. Compare them to determine which loan is best for you. Listed below are many of those characteristics, plus some insight on how to tell what's good or bad about each.
Interest Rates
Most private loans have a variable rate and an interest rate cap, which means the cost of borrowing the loan can fluctuate up to a specific percentage while you're repaying the loan. Your goal as you look at the various loans is to find the lowest interest rate with the lowest cap. Here are some tips and questions to ask:
- Look for fixed interest rate loans; the payment amount will be constant and unsurprising.
- If the interest rate is variable, find out how often the rate could change. Once? Quarterly? Annually?
- If the interest rate is variable, find out if the payment starts low - so that it might seem attractive - but balloons later to unmanageable monthly payments.
- Determine if the rate is linked to a published rate such as the Prime Rate. This could tell you how often it might change.
- Ask for estimates of total interest charges.
- Find out if there are any periods during which interest isn't charged.
Fees
Most loans have a variety of fees associated with them. Fees for originating the loan and fees for insuring loans are probably the most common.
- Make sure you understand all of the fees - ask the lender to explain each one if you don't.
- Ask if the fees are deducted from the amount you're borrowing, if they're in addition to that amount, or if they're "out of pocket." If the fees are not "out of pocket," you'll probably have to pay interest on the fee amounts.
- Find out if the fees are based on a percentage of your loan or a flat fee regardless of the amount you're borrowing.
- Determine if there are any service charges over the life of the loan.
- Determine if and how late fees are assessed.
Term
Each private loan may give you a different length of time, or term, in which to repay the loan.
- Understand that you'll pay more in interest on a longer-term loan. A 20-year loan with low payments may look very enticing, but it will cost you much more over the long haul than the 10-year loan with slightly higher payments.
The following characteristics of private loans may or may not be in the fine print, but be sure to ask your potential lenders about them.
Discounts or Benefits
Most lenders will offer discounts or benefits to their borrowers to increase the attractiveness of their loan product over the competition's product. These benefits can offer you tremendous incentives, so check them out and compare them between lenders.
- Determine if you can get an interest rate reduction or an account credit for making payments on time.
- Find out if an additional reduction is available if you make electronic payments (e.g., direct debit from your checking account).
Repayment Schedule
Some lenders may offer different repayment options. The standard plan is to pay the same amount every month for the life of the loan. This may not work best for you, based on your current or anticipated income (when you start repayment). A graduated plan may be offered that starts with a lower payment that grows to a larger payment over time, hopefully corresponding to increases in your income.
- Consider carefully your financial situation before varying from the standard plan.
- Ask the lender what impact a variable rate may have on any graduated plan offered.
Customer Service
Many lenders focus on customer service when they're trying to get your signature and then lose that focus afterwards. You should be concerned about that: over the life of the loan, you're going to have questions and concerns, and you're going to need to update personal information on occasion. And, there's nothing worse than bad customer service or reaching voice mail rather than a live operator when you need help. So, ask some of the questions below.
- Does the lender offer toll-free customer service?
- What hours are knowledgeable representatives available to answer your questions? Do those hours include nights and weekends?
- How long is the average wait to talk with a representative?
- Will the lender accept e-mail and fax inquiries? If so, how long does it normally take for response?
- Does the lender offer on-line access to your account information?
Reputation
The lender's reputation is also important when considering private loans. Here a few things to consider:
- Remember that there is truly a difference between dealing with a reputable lender and a "loan shark."
- Research the lender's track record and strength. Check the history of its stock, if publicly traded.
- Determine if your school would recommend this lender.
Is There Anything Else You Should Ask?
- Does the lender offer online applications?
- Does the lender offer "instant" loan approvals?
- Does the lender usually sell loans to a secondary market?
- Does the lender require collateral for this loan?
- Does the lender consolidate loans?
- How quickly does the lender process the loan?
- How quickly does the lender disburse loan proceeds?
- Do you need a credit check?
- Do you need a co-borrower or cosigner?
- What is your borrowing minimum or limit?
- Can you defer interest payments?
- Is your interest deductible from your taxes?
It's the Law
Under the Truth in Lending Law, the lender must tell you, in writing and before you sign any agreement, what your finance charge and annual percentage will be.
| Sample Payment Schedule | ||||
|---|---|---|---|---|
| Loan Amount | Number of Payments | Monthly Payment | APR | Finance Charge |
| $3,000 | 72 | $53.96 | 11.5932% | $1,095.12 |
| $8,000 | 120 | $101.11 | 10.6713% | $4,693.20 |
| $15,000 | 180 | $151.79 | 10.2193% | $13,372.20 |
| $20,000 | 180 | $202.38 | 10.2192% | $17,828.40 |
These examples assume an interest rate of 8.75% in the first year and 9% in subsequent years, and a single disbursement of the loan. The actual interest varies from lender to lender as well as program to program.
Some of the lenders* Saint Joseph's College has partnered with to offer these alternative loans are listed below. Be sure to tell whichever lender you choose that you are attending Saint Joseph's College. The SJC FAFSA school code is 001833.
| Lender Name | |
|---|---|
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Sallie Mae Smart Option Student Loan |
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Charter One Bank |
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Chase Bank |
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