When to Consider a Non-Federal Student Loan

You should consider a non federal student loan when traditional student loan programs do not meet your needs. Bad, or poor credit, can make you ineligible for a PLUS loan. Or, you may also need additional resources beyond the borrowing limits set in a Stafford loan. Non-federal student loans are provided by private lenders and can be structured in the same manner as any other type of personal loan. Keep in mind that a non-federal student loan cannot be deferred like a Federal Stafford loan. The loan's principal and interest needs to be paid back immediately, even while the student is attending school.

Federal Application for Federal Student Aid

One way to determine the need for a non-Federal student loan is to complete a Federal Application for Federal Student Aid (FAFSA) form. The FAFSA is used by colleges and universities to determine the amount of aid that can be provided to a student for school. The FAFSA includes information on the parent's financial resources and other assets available to fund school and is used to calculate the amount of grants and loans that will be given to the student. The amount of unmet need as a result of the FAFSA filing can be filled with a student loan.

Private Non-Federal Lending Programs

If the requirements of either program do not meet your needs to fund your college education, a bank or other lender can provide you with information on private programs. These non-Federal student loan programs do not have the backing of the government and are not subject to interest rate caps. This can result in a loan with a higher rate of interest, depending on your credit rating.

Be leery of non-Federal student loan or private loan programs that promise loans to all persons regardless of credit. These loans tend to come with conditions and terms that could create a potential loan default or higher interest cost to the borrower. Consult with a qualified financial aid specialist or other professional who understands how these programs work in order to make sure that you receive the correct information about a private loan source and how it may benefit your situation.

Whether you use a non-Federal loan provider, you should determine how much you need and look to all available resources before taking out a loan. This will help you save costs and reduce the potential for loan default and an adverse credit rating.

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