When loans provided by banks and not backed by the federal government first became available, there was some disagreement on what they should be called. An alternative student loan is commonly called a private student loan.
Whatever you call it, an alternative student loan is a loan made to you by a bank or other lender. The loan is made based on your or most likely your co-signers credit. Because these loans are not gauranteed by the government, your lender will look at your ability to pay based on your credit score. That’s why most student borrowers need a co-signer. Most students do not have enough income or a well-established credit history by which a lender can determine their likeliness to repay. Just because you may need a co-signer does not mean you have bad credit. It just means they would feel more comfortable making the loan available to you if you have someone sharing the responsibility to repay the loan if for some reason your are unable to do so.
Alterntive Student Loan Overview
- Alternative student loans are based on credit–you’ll probably need a co-signer to get one
- You will likely be able to postpone repayment until you graduate or cease to be enrolled half time
- Pay close attention to interest rate, total cost of borrowing, APR, how long you may take to repay, and loan fees
- Almost always a better option than using credit cards
Remember, borrow federal student loans before considering alternative education loans. Most important, borrow only what you need and carefully compare all of your options before you borrow.