What to Look for when Borrowing an Alternative Loan
Be sure you really need an Alternative loan.
The Office of Student Financial Services typically awards enough financial aid to
cover the entire Cost of Attendance.
Financial aid award packages almost always consist of some type of loan. Students
who prefer not to borrow money or who want to keep their borrowing to a minimum, often
work
instead. Ultimately, it's up to you to decide what is right for you. Consider all
sources of income and borrow only what you think you'll need.
Understand the loan terms and any repayment incentives.
Loan Fees:
Most lenders no longer charge up front origination fees but typically add them
on to the cost of the loan when you go into repayment. This will cause you to
owe more overall so be sure to compare fees by reading the small print on loan
disclosures.
Principal Reductions:
Some lenders may refund a percentage of your outstanding Alternative loan
balance either at the start of repayment or at designated milestones of repayment,
such as 36 months or 48 months.
Interest Rate Reductions for Repayment:
Some lenders may reduce the interest rate at the start of repayment or at designated
milestones of repayment, such as 36 months or 48 months.
Interest Rate Reductions for using Automatic Payments:
Some lenders may reduce the interest rate if you elect to repay your loan through
pre-scheduled automatic bank debits. Although the reduction in interest rate varies,
the reduction is typically 0.25%.
Forgiveness of Final Loan Payments:
Some lenders will waive your final few payments and consider your loan paid in full.
This benefit is not very common, and typically does not cover more than the last
6 months of payments.
Consider more than just cost.
When making a large purchase, you generally shop around until you find a good product
for a reasonable price. Similarly, you should "shop" lenders until you find one who
can disburse your loan funds to your school efficiently and accurately at a competitive
cost. Lenders should always be available and able to answer your loan-related questions
and concerns. Remember, your loans have to be repaid, so you want to select a lender
who's accessible and easy to work with. Additionally, you may want to consider using
a lender who will provide you with a greater range of services later, like checking
accounts and future home or auto loans.
Do your research.
Lenders often advertise that they have the best loan product available. While this
may be true, they may not be the right lender for you. To help you decide, use the
following checklist:
- Dedicate some time to calling or e-mailing lenders.
- Ask them the following questions:
- Do you charge loan fees?
- What are your repayment benefits?
- What do I have to do to receive these benefits and how are the benefits lost?
- If I borrow $10,000 over my college career and I receive all these benefits, what will be the total dollar amount I will repay by the end of my 10-year repayment?
- If I borrow $10,000 over my college career and I receive NONE of these benefits, what will be the total dollar amount I will repay by the end of my 10-year repayment?
- Compare the cost of your loan, the service you received, and any other advantages to using each lender you contacted.
Understand the fine print.
In most cases, the ability to cancel loan payments and/or reduce interest
accrual or principal requires that you make your payments on time. Students may
lose advertised benefits if they miss payments.