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Private Student Loans

What are private student loans?

Private student loans (also known as alternative loans) are student loans from a lending institution that are not part of the federal government guaranteed loan programs. They usually do not have generous benefits as federal government guaranteed loan programs do and can have high variable interest rate.

When compared to Federal Loan Programs, Private loans are a MUCH MORE EXPENSIVE source of educational financing. A student should NEVER consider borrowing from private loan program until they have exhausted all their Federal Loan options first. Dependent Undergraduate students applying for private loan financing with a parental cosigner are advised to first investigate the options offered by the Federal  PLUS program before applying for an private loan.  A detailed comparison between the PLUS and Private loan programs can be viewed here.

PRIVATE EDUCATION LOAN APPLICANT SELF-CERTICATION FORM AND FAU COST OF ATTENDANCE
   

Due the enactment of new regulations (Title X - Private Student Loan Transparency and Improvement Act of 2008), a student applying for a private educational loan is required to complete the Private Education Loan Applicant Self-Certification Form. This form must be submitted directly to the lender. To complete this form, information regarding FAU cost of attendance must be provided. Information regarding the total cost of attendance at FAU can be found at: http://www.fau.edu/finaid/apply_aid/coe.php.

SOME FACTORS TO BE CONSIDERED FOR WHEN COMPARING PRIVATE LOAN PRODUCTS:

1. Focus on the APR.   Private student loan pricing consists of two components: interest rate and other "fees" which may be charged at the time the loan is disbursed or when the loan enters repayment. The Annual Percentage Rate (or APR) is a value which expresses the true cost of the loan and captures both of these components. Lenders are required to provide APR information to prospective borrowers. Also, private loan borrowers should be aware that the formula used to calculate APR often will change depending on whether the borrower is in school or in repayment. You should compare the costs of private loan products by comparing both the in-school and in-repayment APRs.         2. Have an idea of what rate you will qualify for BEFORE you apply.       Many private loan providers will market their products advertising "rates as low as" a certain interest rate. Unless you are a borrower with an outstanding credit score, chances are you will not qualify for the lender's lowest rate.  Your APR is determined by your credit history, your debt-to-income ratio and, with many lenders, by the school you will be attending (borrowers attending schools with a low student loan default rate are viewed favorably). A smart borrower will obtain their credit score first from one of the three major credit bureaus (Experian, Transunion, or Equifax - you should be able to get your score for $15.00 or less) before starting to shop for private loans. With this information, you should be able to get an idea of what your APR will be before applying. Though a lender will usually not be able to tell you your actual APR until you apply (they have to do their own credit check), they should be able to inform you of their available pricing "tiers", which are the different APRs available to borrowers with excellent, good, or fair credit. Pricing tiers will also vary depending on whether or not you apply with a co-borrower and the co-borrower's credit (applying with a co-borrower will often provide access to a lower pricing tier). As new private loan applications have a negative effect on your credit score because lenders view the fact that you're looking for more credit as a risk, it is advised that you do not apply for any private loan product until you have some idea of the rate you will qualify for. If your prospective private loan provider will not provide you ANY idea of their pricing tiers prior to applying, it is STRONGLY advised that you do not do business with that entity.                 3. Ask about interest capitalization.   Interest capitalization is basically how often the amount of accrued interest is added to your loan principal. Some lenders capitalize your interest annually, others do it once a quarter, and some capitalize interest only once you enter repayment. It can have a big impact on the cost of the loan. The more frequently interest is capitalized, the more you end up paying because you are basically paying interest on interest as it compounds.                   4. Ask about borrower benefits.   Most lenders offer interest rate reductions or principal refunds if you pay your loan on time. Many will offer interest rate reductions when you sign up for automatic payment withdrawals from your bank account. If applying with a co-borrower, many will offer co-borrower release option to good customers that allows the co-signer to be taken off the loan after a number of on-time payments. Make sure to investigate all available borrower benefits when selecting an private loan provider.

Check the financial aid glossary for unfamiliar words. Make sure you meet all loan eligibility requirements specified by the lender which may include enrollment requirement and / or satisfactory academic progress requirement.

 

REMEMBER - BORROW ONLY WHAT YOU NEED!

   

LOAN PERIODS: When applying for an alternative loan, the lender will ask that you supply them with the loan period (also called period of enrollment) you are requesting the loan for. Below is a  list of valid FAU loan periods. The loan period you specify should be ONE of these:

Enrollment Period : Fall 2012 and Spring 2013 Fall 2012 ONLY Spring 2013 ONLY Summer 2013 ONLY Fall 2011 and Spring 2012 Fall 2011 ONLY Spring 2012 ONLY Summer 2012 ONLY

Dates : (08/18/12 - 05/03/13) (08/18/12 - 12/07/12) (01/05/13 - 05/03/13) (05/13/13 - 08/06/13) (08/20/11 - 05/04/12) (08/20/11 - 12/09/11) (01/07/12 - 05/04/12) (05/14/12 - 08/07/12)

PLANNED ENROLLMENT AND HOUSING:  In order to process a private student loan, Florida Atlantic University will need information regarding your planned enrollment and housing status for the loan period you have specified. FAU will normally obtain this information from your Student Aid Report, which is created after you file a Free Application for Federal Student Aid (FAFSA). If you are requesting to be processed for a private student loan and do NOT have a Student Aid Report on file with Florida Atlantic University for the loan period you are requesting, you MUST submit a Statement of Planned Enrollment and Housing for Alternative Loan Processing (number 4 under Loan section). 

IMPORTANT NOTE ON PRIVATE STUDENT LOAN DISBURSEMENTS :

The enactment of the new regulation (Title X - Private Student Loan Transparency and Improvement Act of 2008), gives the borrower a three days of recession period. During the recession period the borrower can cancel the loan and the lender cannot disburse the loan fund. The recession period starts when the lender finalizes the loan processing and puts the loan status in ready for disbursement status.

In some cases, private student loans are disbursed to FAU as paper checks. The paper checks will be made co-payable to FAU and the student.  The student will need to endorse and return the paper check to FAU. Upon the receipt of the endorsed paper check, FAU will process it thru the disbursement process.

FINDING PRIVATE LOAN LENDERS

1. Before you start to search for private loan lenders, you should explore your   eligibility for Federal Financial Aid. The instructions to apply for the Federal Financial Aid can be found here. If you qualify for Federal Financial Aid, you should have exhausted your Federal Financial Aid eligibility prior borrowing from private loan products. Remember that private loans usually carry high, variable interest rates, with very limited borrower benefits when compared with federal loans.

  
2.  You can utilize well-known Internet search engines to find reputable private loan lenders. You can also utilize web sites that list private loan lenders such as http://www.finaid.org/loans/privatestudentloans.phtml. You should research consumer reports regarding the lenders and their products prior applying for their private loan product.
     
3.  You can inquire financial institutions such as banks or credit unions about their student private loan products.
     
4.  Depending on the lenders, they may charge you fees to originate the private loan for you. Remember to compare several products from different lenders to ensure that you receive the best private loan product with a favorable interest rate that suits your need.