Alternative Student Loans
Alternative student loans are private education loans that offer families another option to fill the gap between a student’s financial aid and the cost-of-attendance.
Due to fluid changes in the current lending market, Binghamton University does not have a preferred list of lenders. We recommend that students research lenders and loans to find the loan product that meets their individual needs. (See RESEARCHING ON YOUR OWN section below.)
The following points are offered to assist you when making your decision to borrow an alternative loan:
Since regular federal student loans offer fixed interest rates, low loan origination fees, and much more flexibility in loan repayment, deferment, forbearance, and forgiveness, a student should not use an alternative loan product until the federal loan option has been exhausted.
- • The federal parent PLUS loan has a fixed interest rate of 7.9% with a net origination fee of 2-1/2% after the front-end rebate of 1-1/2%. The parent PLUS loan can now be deferred until the student graduates and does not have as stringent of a credit check as alternative loans. For parents intending to assume responsibility for paying the student’s alternative loan, the PLUS Loan might be a better option.
- • For graduate students qualifying for regular federal loans, the federal graduate Plus loan is an option after the regular federal subsidized and unsubsidized loans have been exhausted. Since the interest rate is fixed at 7.9% and the credit check is less stringent than alternative loans, the graduate Plus loan might be a better option than an alternative loan.
More on ALTERNATIVE LOANS
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Current bullet containing consolidation information: • Most lenders have a tiered interest rate strategy tied to the borrower’s and co-signer’s credit scores. Lenders entice with their best rates, but less than 25% of students generally qualify for those rates.
- • A student should try to secure a credit-worthy co-signer if pursuing the alternative loan option. This is recommended as most students are denied without a co-signer. The rates are generally much better with a credit-worthy co-signer.
- • Alternative loans are certified by the school and the proceeds go directly to the school to pay account balances. The amount of the loan cannot exceed the difference between Binghamton’s cost-of-attendance and the student’s accepted financial aid. Any money remaining after the semester balance has been paid is refunded to the student. We recommend you apply at least two to three months prior to the first semester of enrollment. It is the responsibility of the student to resolve issues with the lender during the application process.
- • Alternative loans cannot be added to future federal student loan consolidations. However, some lenders offer alternative loan consolidation products for consolidating only alternative loans.
- -Student loan consolidation may extend your repayment term, increasing your overall financial obligation. However, your monthly loan payments may be reduced. You can choose to prepay principal with no prepayment penalties, which reduces the overall cost of your loan.
-WARNING: Due to the current market, loan consolidation products are not offered by most lenders. Before you borrow, ask if private loan consolidation is an option.
- -Student loan consolidation may extend your repayment term, increasing your overall financial obligation. However, your monthly loan payments may be reduced. You can choose to prepay principal with no prepayment penalties, which reduces the overall cost of your loan.
RESEARCHING ON YOUR OWN …and here’s what you will find
- • A comprehensive list of lenders and their rates
- • A loan comparison tool
- • A detailed explanation of the difference between the libor rate and the prime rate
- • A link to a site that allows a student to have lenders bid for the student’s business (the lenders doing the bidding, however, are affiliated lenders and do not represent the totality of lenders)
- • Summaries and links to other loan comparison sites
After selecting a loan product, it is strongly recommended that the lender be contacted so you can be sure the rates and terms are still current.
What to ask when you call:
- • How long have you been in the alternative loan lending business?
- • Is this your own loan product and do you service your own loans? If not, who does? (It is generally better to have the loan held and serviced by the same lending institution you applied through.)
- • What percentage of students are approved at the top (most favorable) interest/loan fee tier?
- • How long can the loan be deferred before I have to start repaying it?
- • Do you have any repayment incentives? Are they guaranteed for the life of the loan or might they be changed later?
Other Web Resources:
Loan Comparison Worksheet- Federal vs. Private
Office of the Attorney General – General Information About Student Lending
The above information and websites provided are meant to guide in choosing an alternative loan and are not presented as an exhaustive source. Binghamton University has no affiliation with any lender or website provided.
