What Are the Different Types of Alternative Education Loans?

Osmand Vitez

Alternative education loans represent monies a student receives that are beyond any federal loans or grants. Common federal loans and other monies include grants, scholarships, and traditional educational loans, which must be repaid after the student finishes school. Private education loans are those that fall under the label of alternative education loans. Students are responsible for finding these monies and using them along with other loans for their school programs. The terms for these private loans may not be as favorable as the terms on federal loans.

Woman standing behind a stack of books
Woman standing behind a stack of books

Common sources for alternative education loans include banks, credit unions, and financial institutions that specialize in loaning money for different purposes. Each institution most likely has its own requirements for education loans, with some requirements being universal. Banks are perhaps the most common — and easiest source to find and apply to — option for alternative education loans. Each bank dictates its own terms and may not defer payments until after graduation, which is a common attribute of federal loans. Banks may require individuals to have checking or savings accounts at the financial institution along with the loan, creating a customer relationship with the borrower.

Credit union loans may have more favorable terms compared to standard bank loans. With a credit union, loans are usually reserved for existing members and may carry more favorable terms than standard alternative education loans. For example, borrowers may receive low interest rates, longer repayment terms, or deferment of payments until after graduation. In some cases, these loans may also be available for part-time students getting degrees while working. The benefits all hinge on the borrower's membership at the credit union and past history with the financial institution, along with the credit union’s ability to offer education loans.

Large financial institutions and major investment banks may have special alternative education loans available for students. These institutions may not be very favorable when compared to traditional banks and credit unions. Alternative education loans here may fall under the simple review of the borrower’s ability to repay the loan at some future time. With this in mind, the loan terms may not be as favorable as the loans offered by banks as the financial institution may offer poor terms to the most extremely risky borrowers. These loans may be a last resort for those seeking monies for education purposes; while no one may be turned down, the terms may be very poor and result in a difficult repayment process for the borrower.

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