Private Alternative Student Loans Examined

In the world of student lending, the private alternative student loan is one used to bridge the gap between the financial assistance received from the school being attended, and the estimated total cost of attendance. This type of loan comes from a private institution, and should be a last resort once financial aid, work study, federal student loans, and other types of assistance have been exhausted.

What the Loan Covers

The private alternative student loan covers college expenses that tuition will not: off campus housing, school supplies, transportation, computer expenses, and so on. It is best to research the various private alternative student loan options in order to secure the best rate. Many times this loan will have a lower interest rate, but require higher fees. A good rule of thumb is that 3% to 4% in fees will be equivalent to a 1% higher interest rate.

Loan Interest Rates

In general, the private alternative student loan will have interest rates of the London Interbank Offered Rate (LIBOR) + 2% or PRIME - 0.50% with no fees. In order to qualify for these rates, the borrower will need to have good credit as well as a credit-worthy cosigner. If a lender requires school certification, then they may cap the annual loan amount at the cost of education less aid received (COA-Aid).

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