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Alternative Student Loans as Secondary Financing Sources
By Myles Johnstone

In financing undergraduate and graduate education, many universities and other financial institutions offer alternative student loans. These are loans supported by private sources such as banks and non-profit organizations, and are options open to students to support requirements not covered by federal or state student loans.

Among these are residence or off-campus living expenses, transport (read car) and ancillary school expenses. Loans can go as high as $40,000 per academic year. Many alternative student loans are also offered for kindergarten to grade 12 students, called K-12 loans.

Interest Rates

Alternative student loans are competitive in that they generally offer interest rates as low as Prime+0%. Prime rates are London Inter-Bank Offering Rates (LIBOR), the usual basis for lending, including commercial and industrial bank loans. However, different alternative student loan sources have different rates and computations, or may require co-signors, so it is always advisable to compare options.

Creditworthiness

Since alternative student loans are private loans and not largely controlled by strict government regulations, lenders have varying methods of computing creditworthiness, the primary gauge in granting loans. To determine creditworthiness, credit scores are computed based on a system formulated by the Fair Isaac Company, called FICO scores. The scores range from 300 to 900 and affected adversely or positively by objective and subjective judgments on late/default/incomplete payments, liens, too low income-to-loan ratio, or family events.

Nevertheless, the scoring method may generally follow the factors distribution outlined below:
35% Loan payments history
30% Other loans outstanding
15% Length of credit availability
10% Credit investigation report
10% Credit Types

A score of 675 or better is considered ‘good' for most major lenders, those lower than 625 require further study, while alternative student loan applications with scores lower than 600 are denied right away.
Alternative Student Loan Providers

Banks are good sources of an alternative student loan. They are proximate, personal, and some even know you, so you don't get hassled too much. Furthermore, many banks have online services through which one can apply for an alternative student loan. Check out your nearby bank first: it may offer you very good terms.

The SallieMae Company is the country's leading alternative student loan provider. It started in 1972as a government-sponsored entity, went private beginning 1979 until 2004. It has 10 million clients and manages $11 billion for a million customers. The SallieMae Company exists for granting federal, state and alternative student loans.

Other companies and credit unions in varying sizes and capabilities also offer alternative student loans. Some are bank subsidiaries, state-funded or university support entities. Some are state-wide or federal in scope, while others are strictly local, providing college funding for local undergraduate students. Check them out, too. Quite a few are liberal in their lending and repayment terms for their alternative student loans.

Repayment

As with federal loans, student loan repayments generally start six months after the grantee graduates or stops attending school, whether fulltime or half-time basis.

So, if you need supplemental education financing, or prefer less hassles and less restrictive terms, seek out an alternative student loan. It just may be the better choice for you.

About the Author
Myles Johnstone writes exclusively for finance related sites about such subjects as turnaround finance and commercial mortgages and other finance solutions.

Source: Directory of Free Articles

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