Private (Alternative) Loans

These loans serve to bridge the gap between the availability of other types of financial aid (Stafford loans, Graduate PLUS loans, scholarships/grants, and service contracts) and the Cost of Attendance. They are not based on financial need.

Private (Alternative) education loans are offered by private lenders and eligibility is usually based on the borrower’s credit score which is derived by weighing several credit history factors, such as payment history, amounts owed, length of credit history, new credit, and types of credit used. This score, in combination with other specific considerations such as debt-to-income ratio and bankruptcy history, is used by educational lenders to determine eligibility.

Interest rates on Private (Alternative) loans are typically variable and initially may be based on the borrower’s credit score or the credit score of a cosigner and on general market rate indices such as Prime or LIBOR.

It is highly recommended that students use as much of their Stafford loan eligibility as possible before using Private (Alternative) loans.

Comparison of Graduate PLUS and Private (Alternative) Loans

Graduate PLUS Loans:

Do not use your credit score as a basis for approval. Instead, they require a credit worthiness check which looks at whether or not you have an adverse credit history, defined as one or more of the following:

90 days or more delinquency on any debt, or
bankruptcy, foreclosure, or repossession within the last five years, or
in default on any debt, or
any federal student aid debt written off in the last five years.

Have a fixed 7.9% interest rate.
Are part of the Direct Loan System under the U. S. Department of Education, these loans are processed by the federal government and the terms and conditions can only be changed by Congress.
If you meet the credit worthiness conditions above, but don’t have a high credit score, or plan to use an extended pay-off period, you may want to consider a Graduate PLUS loan instead of a Private (Alternative) one.