Financing beyond the Government Loan:
Alternative Options for Education Financing
by Herm Davis,
Online Financial Aid Advisor,
eStudentLoan.com
Co-author, Financial Aid for Dummies
Funding the Gap
Even students who have done everything right--applied for scholarships
and grants, filled out a FAFSA, and qualified for government loans--may
find they don't have enough money to pay for college. Comparing their
school financial aid package, grants, and government loans with their
tuition bill, they might still find a difference between what they've
been awarded and the cost of education. This difference, the "expected
personal contribution", is also known as the "gap". Unless the student
is a recent lottery winner, or one with a very healthy savings account,
private or alternative loans may be needed to help fill in the gap.
Alternative Loans Defined
The purpose of alternative loans (also called private loans) is to
supplement the student and parent education loan programs available from
federal and state governments. These programs are established by private
lenders, and a few offer terms that are highly competitive with those of the PLUS and unsubsidized Stafford loans. Most, however, are somewhat more expensive.
Doing the Research
Before obtaining an alternative loan, it's necessary to compare the
terms of the loans with other loans. This process includes comparing
federal and state education loans, home equity loans and lines of
credit, personal lines of credit, credit cards, loans from retirement
funds and insurance plans, and personal loans from relatives, friends,
and neighbors. If everything else is equal, a lower APR (annual
percentage rate) is generally less expensive--but calculate the total
cost of borrowing to make sure. A student should also calculate
carefully the total cost of an alternative loan before signing up for a
loan that offers a lower introductory rate or a tiered origination fee
(charged when the loan is taken out and then again when repayment
begins). These loans can seem like a better deal, but may have hidden
charges and fees.
All private loan programs will do a credit check and/or an
income-to-debt ratio check on either the borrower or co-signer or both.
Alternative loans are not federally guaranteed and can take several
weeks to process. Typically, the lower the cost of the loan, the more
restrictive it is.
Also, eligibility for alternative loans may be affected by your
government loans, whether a school participates in the FFELP (Govt.
loans through third party lenders) or the FDLP (Govt. loans directly
through the school) program, and other factors.
Comparing Alternative Loans
All of the above research can seem overwhelming, and the sheer numbers
of lenders and complexity of their loans can be daunting. Finding the
loan that best fits your needs can take hours of research. A number of
students have turned to the web to help narrow the field, with mixed
results.
Loan Research on the Web
Of course dozens of lenders have launched web sites, and students can
visit each one individually. This still takes a great deal of time and
effort, and of course these sites are biased in favor of their own
loans--it's hard to get a clear picture of what will work best for you.
Fortunately, some organizations have begun publishing comparative
information online.
For example, eStudentLoan at
http://www.eStudentLoan.com is a great tool for getting around these problems. Tell their LoanFinder what you are looking for (via a guided step-by-step survey of your needs). The LoanFinder sorts its database of alternative lenders to match the four lenders who best meet your needs. You can then learn more about those loans and lenders and even start the loan process, right online. Since
eStudentLoan is not in the lending business itself, it only selects
loans using the preferences and needs given by the student.
One recent student sent a note to
eStudentLoan explaining how the site
helped her streamline her funding search:
I spent about 3 hours online going through the search engines searching for alternative student loans. I finally used Yahoo, and your web site was one of the first returned. I was so relieved to find such a user
friendly and comprehensive web site. It answered many of my questions,
and provided me with info I hadn't thought of yet. As an adult student
entering college for the first time, it was a relief to find out about
all the alternative programs available. I will definitely recommend your
web site to anyone looking for financing alternatives. Thanks for the
great service!
Funding higher education these days is a complex task, requiring lots of
patience to sort through the enormous amount of information. It's good
to know there are loans out there to help fill the gap left when
financial aid packages don't cover all the expenses, and it's good to
know there is reliable help on the web to do the lender research for
students. There is money out there beyond the government loan, and
eStudentLoan is a great way to find it.
The site also contains a Scholarship Search (SRN Express), and a links
page. How-to guidance is provided by an advice page written by
financial aid experts, including myself, and a financial aid workshop.
Copyright © 1999 Herm Davis and
eStudentLoan LLC. All rights reserved.
For more information about eStudentLoan,
click here or on their banner below:
