Alternative Loans

After exhausting available federal and family resources, some students may need to apply for an alternative student loan to pay for educational expenses.  Federal regulations now require additional steps to be taken during the loan application process.  Students must now acknowledge three separate disclosure notices and complete a student self-certification form with information that can be obtained from their myPlymouthaccount. Due to these new requirements, the time required to process your loan will be extended.

To assist you through this process, we recommend that you:

  • Start the application process early, but not too early. Since Alternative Loans must be disbursed within 90 – 120 days from the date the lender runs a credit check, it is not recommended that loans for Fall be applied for prior to June or loans for Spring be applied for prior to October.
  • Confirm that you are applying for the correct time period.  Typically, you want to apply once  a year for the amount you will need for both terms.
  • If you do want to apply for each term separately, Fall only loans should have a loan period of September through December; Spring only loans should have a loan period of January through May.  Any loan with a a loan period of September through May will be split equally between the fall and spring terms.
  • Complete and return requests from your lender in a timely manner
  • Check the status of your loan with your lender frequently

STUDENTS MAY CHOOSE ANY ALTERNATIVE LENDER

PSU provides a tool called FASTChoice Solutions if assistance is needed in selecting an alternative (private) lender.  This tool is provided by Great Lakes Higher Education Assistance Corporation (GLHEAC) to assist PSU students in selecting a lender and provide the ability to compare the benefits and terms of each loan program to assist students in making the best choice.

Don’t see the lender you want to use? Not a problem.  This list is a starting point and is not meant to be all inclusive.  Students can choose to borrow from any lender whether listed in FASTChoice or not. 

In recent years, many credit unions have begun to offer competitive rates on alternative student loans.  Since credit union membership is required to take advantage of those rates, it is difficult to list them on a general lender list.

Many states offer their residents very attractive student loan options to finance any remaining gaps after federal eligibility has been exhausted.  If you are a resident of one of the following states, please click on the link corresponding to your state of residency for more information about these programs:

Connecticut:  CHESLA – 1-888-295-0911
Massachusetts:  MEFA – 1-800-449-6332
Maine: MELA – 1-800-922-6352
New Jersey: NJ CLASS – 1-800-792-8670
Rhode Island: RISLA – 1-800-758-7562
Vermont:  VSAC: Vermont Advantage – 1-800-798-8722

 

Some things to consider when applying for an alternative loan

    • Alternative loans are loans through a private lending institution and do not necessarily have benefits similar to federal government programs, such as the option to tie your monthly repayment to your income. More information on the difference between private and federal aid can be found on the StudentAid.gov website.
    • Some alternative loans require families to immediately begin repayment of interest which accrues on each loan while the student is attending college.
    • The interest rates on alternative loans can be either variable or fixed, while federal loans have only fixed interest rates.
    • Be sure you have applied for all available scholarships, grants, work study and federal loan programs offered (by completing the FAFSA) before borrowing from an alternative loan program.
    • Alternative loans are in the student’s name and a ‘good’ cosigner is often required. What makes a good cosigner? Steady employment with enough income to meet debt obligations, able to meet credit obligations, credit is not overextended, no serious negative items on credits history.
    • Once a complete application has been received, the lender will perform a credit check and will let you know if your application has been approved.
    • Eligibility for alternative loans is based on the  Cost of Attendance minus other financial aid received. 
    • If you intend to either reduce or decline your Federal Work Study in order to have a higher Alternative or Federal Direct PLUS loan, please do that at least one day prior to applying for the loan by contacting the Financial Aid Team.  Alternative loan amounts and terms can no longer be changed once the school has certified the loan.

Important information on how PSU processes your loan

    • Plymouth State University will not certify an Alternative loan until we receive notification that the master promissory note has been signed with the lender and the loan has been approved.
    • If PSU receives an Alternative loan certification request and the financial aid process has not been completed, we will hold that certification until the student has been awarded federal financial aid OR the student notifies the Financial Aid Team that they wish to withdraw from the federal financial aid process
    • Holding certification of an Alternative loan may result in an expired credit check approval. Credit approval generally expires every 90 days.  Credit may need to be rechecked by the lender if the Alternative loan has not been certified by PSU within the first 90 days.
    • You may view your PSU Loan History online to estimate the total amount borrowed in Federal, Private and PLUS loans while at PSU. Students can track this information beginning their first year at PSU through the time they graduate.
    • If aid was identified on your award which you do NOT choose to accept (i.e. Federal Parent PLUS Loan or Federal Work-Study), you may access an alternative loan to replace these programs after written notification declining these programs has been received by the Financial Aid Team

Thinking about a Private Loan? Be sure to understand the full impact it will have on your financial aid package and your budget.  Below are some important questions to ask a private lender when applying for a loan.

Borrower Eligibility

Is a co-signer required?  If so, under what circumstance?

Would the interest rate and/or fees be reduced if I applied with a co-signer?

Is there an option to release the co-signer at a later date (i.e. after a specific number of on-time payments)?

Interest Rates and Other Fees

What is the initial interest rate?

Is the interest rate fixed or adjustable?  If adjustable, how often does the interest rate adjust (some lenders adjust the interest rates each month, some are quarterly, etc.)?

Is there a cap on the interest rate (maximum rate that may be charged)?

Is there an origination fee associated with this loan and if so how much is it?
(An origination fee is the amount the lender subtracts from each of your loan disbursements.  It is usually calculated based upon a percentage of the amount you borrow)

Is there a repayment fee associated with this loan and if so how much is it?
(A repayment fee is an amount added to your total loan before your repayment period begins)

What additional fees may be incurred during the life of the loan?

Are any of these fees based on credit rating or existence of a co-signer?

What, if any, interest rate reduction, or other incentives may be offered during the life of the loan?

How will the interest on my loan accrue while I am in school?  Will it be capitalized?  If so, how often? 
(Capitalization is when the interest accrued is added to the amount you borrowed.  The frequency at which this occurs is very important when determining how much you will repay.  Capitalizing interest once prior to repayment is much better financially for you than capitalizing interest on a monthly basis.  Either way, we recommend paying the interest as it accrues while you are in school)

What is the interest based upon? Is it a percentage added to LIBOR, T-Bill, or Prime Rate?

Check out this brochure for more information about the cost of student loans and this article about 7 things you need to know about private loans.

 

Loan Application Process

Is the loan application online or is it paper?

How does my co-signer complete their section of the application?

Can I sign the application electronically, or do I need to print, sign and mail the application to the lender?

How will my school be notified I have been approved?

How long does it take for the school to be notified?

 

Repayment Terms and Conditions

Will my loan be sold?  If sold, will I lose my borrower repayment benefits?

How long do I have after I graduate or leave school before I am required to start making monthly payments on this loan?

What is the length of time I will be given to repay this loan?

What is considered an on-time payment?  Some lenders consider payments late if received one day past the due date, others may allow up to 15 days before considering payments late.  Note: If payments are not timely, repayment benefits might be lost.

 

An Important Note about Credit

Lenders use credit scores to make fast and objective decisions on which applicants are likely to repay their loans on time. Credit scoring is calculated using many pieces of your past bill payment history (number and types of accounts, late payments, outstanding debt, and the age of your accounts).

The way you have handled credit in the past is often a good indication of how you will manage credit in the future. Therefore, your credit score is like a snapshot of your level of credit risk at a particular point in time; when your credit information changes, so does your credit score.

Give yourself the credit you deserve. Pay your bills on time, pay down any outstanding debt and avoid taking on new debt or applying for too many new credit cards.  (Note:  myFICO  is a great place to find out more about what your FICO score is.  They even give you tips to improve your FICO score, as well as facts and fallacies about your FICO score!)

Starting July 2011, as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, consumers who are rejected for student loans are entitled to receive a free copy of their credit score and an explanation of why they were turned down. The reasons can range from late payments to maxing out credit cards. Creditors are also supposed to explain where the score ranks nationally, and outline the factors that brought the score down. (Chicago Sun-Times)

April 7th, 2014 by Eric

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