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What are Alternative Student Loans?

Mary Elizabeth
Mary Elizabeth
Mary Elizabeth
Mary Elizabeth

Student loans are funds a student borrows for expenses directly related to education. There are a variety of loan opportunities specifically for students and their families, some of which are federally funded, and some of which are not. Alternative student loans is a term for student loans that are not funded by the government. They are also known as private student loans or personal student loans.

A comparison of federal student loans and alternative student loans reveals that in most cases, a federal student loan is a better choice, when possible. One disadvantage to federal students loans is completing the FAFSA (Free Application for Federal Student Aid), which can be done online or on paper. For students who are still dependents, it requires parental information, and sooner or later in the process, federal tax forms must be completed in order to answer some questions. Although alternative student loans often have an easier process in terms of applying, their terms are not as favorable in a number of ways.

A student loan application form.
A student loan application form.

While federal students loans have low, fixed interest rates, alternative student loans are likely to have variable interest rates that are usually higher. Whereas federal student loans do not require a credit check, alternative student loans do. Federal student loans are able to offer deferment if or when a student returns to school, as well as loan forgiveness in certain instances and repayment plans based on income, none of which is available with an alternative student loan.

Alternative student loans are not issued by the government.
Alternative student loans are not issued by the government.

Federal student loans, however, have limitations. If a student’s educational expenses cannot be met by other means, then seeking alternative student loans may be the best option. Information about alternative student loans is often available from the student’s school. Even lenders who offer alternative student loans point out that the terms can vary considerably, so it is worth investigating a variety of alternatives.

A student without an established credit history may be able to secure a private student loan with the help of a cosigner. The signature of a cosigner who is creditworthy can help lower both the loan fee and the interest rate of an alternative student loan. Most helpful is a cosigner with an excellent credit history. A parent or guardian can often fill this role, but it can also be undertaken by another relative or a spouse. Some lenders offer a cosigner release, a clause that allows the cosigner to be released from responsibility for the loan after the student has graduated and begun to build a record of repayment and upon approval by the lender of an application for release.

Mary Elizabeth
Mary Elizabeth

Mary Elizabeth is passionate about reading, writing, and research, and has a penchant for correcting misinformation on the Internet. In addition to contributing articles to WiseGEEK about art, literature, and music, Mary Elizabeth is a teacher, composer, and author. She has a B.A. from the University of Chicago’s writing program and an M.A. from the University of Vermont, and she has written books, study guides, and teacher materials on language and literature, as well as music composition content for Sibelius Software.

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Mary Elizabeth
Mary Elizabeth

Mary Elizabeth is passionate about reading, writing, and research, and has a penchant for correcting misinformation on the Internet. In addition to contributing articles to WiseGEEK about art, literature, and music, Mary Elizabeth is a teacher, composer, and author. She has a B.A. from the University of Chicago’s writing program and an M.A. from the University of Vermont, and she has written books, study guides, and teacher materials on language and literature, as well as music composition content for Sibelius Software.

Learn more...

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    • A student loan application form.
      By: Brian Jackson
      A student loan application form.
    • Alternative student loans are not issued by the government.
      By: zimmytws
      Alternative student loans are not issued by the government.