Many of the government student loan schemes need no credit check to be done and will provide students with substantial financial help. These programs are however based upon need and normally carry other criteria which can make it difficult to qualify. Even if students do qualify, the loans will only cover a proportion of the total cost of education in most instances. When students find themselves in that position then they may turn to private alternative college loans to make up the shortfall.
Private alternative college loans too have their own set of pros and cons. A credit check is almost universally required and this is no problem as long as you have a good credit history. However 'good' is very much a relative term and if your credit history is not good enough then you will find yourself paying higher than the usual interest rates.
As well as the quoted interest rate there are additional monetary implications of private alternative loans. Fees will generally be tacked on to nominal loan amounts and a relatively small loan of $3,000 may easily have fees of 4% added before distribution. This means $120 of the total is not seen by the student but nevertheless has to be paid back. As a guide, every 3% of fees is equivalent to an additional 1% on top of the quoted interest rate.
But private alternative loans do carry certain advantages.
The first and maybe most obvious one is that money is readily available. Private lenders make their living from the interest and fees which they charge and so have an interest in making money available to borrowers and they will try very hard to see that every applicant qualifies. Federal lenders by contrast have a rigid set of criteria and there is typically no real appeal if your application is turned down.
Avoiding that cold and frequently unreasonable bureaucracy is another benefit of private loans. Private lenders operate customer service departments which are there to deal with queries so that customers can get the answers which they are looking for. Federal loan schemes frequently have help available too but the answers one gets are hit or miss in terms of quality.
Other things which make private alternative loans particularly desirable include:
The fact that students and parents do not have to fill out FAFSA (Free Application for Student Aid) forms and provide a mountain of supplemental documentation. Alternative loan applications have a tendency to be far simpler and indeed the whole process is easier. But, fees and interest rates might be higher or lower according to the specific program.
The most sought after private loans attract zero fees and interest rates which are approximately equal to the prime rate. The 'prime rate' is the rate which banks charge one another or their largest and special customers. If you can get a rate at prime then this is a very good deal and locating a rate at 1% below prime is a great deal.
In order to obtain this type of loan it is normally necessary for you to have a very good credit history or to apply for the loan with a co-signer who has a great credit history.
At the end of the day, the best way to find out whether an alternative loan will suit your purposes is to go out into the market and take a look at exactly what is on offer.
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