Private/Alternative Student Loans
Private Loans vs. Federal Loans
Many banks, credit unions, and other financial institutions offer private (non-federal) student loans, sometimes called alternative loans. Private loan programs may offer interest rates and terms that are competitive with those of federal loans. However, as you consider your borrowing options, you should keep in mind that federal student loans are required by law to provide a range of flexible repayment options, including income-based repayment plans, and loan forgiveness benefits, which private loans are not required to provide. Also, federal Direct loans are available to students regardless of income.
|Federal Loans||Private Loans|
|Co-Signer Required?||Perkins/Direct: No
PLUS: Usually no
|Credit Check Required?||Perkins/Direct: No
PLUS: Yes (limited)
|Deferment Options||Several options guaranteed by law||Depends on program|
|Grace Period||Perkins: 9 months
Direct: 6 months
|Depends on program|
|Interest Rate||Fixed||Fixed or variable|
|Loan Fees||Perkins: No fees
Direct: Approximately 1%
PLUS: Approximately 4%
|Depends on program|
|Loan Forgiveness Options||Several options guaranteed by law for Perkins and Direct||Generally none|
|Penalties for Early Repayment||None||Depends on program|
Choosing a Private Loan
When choosing a private education loan, you should compare the loan terms offered by several programs in order to choose the best fit for your situation. You can learn about and compare private loan terms from multiple lenders side-by-side using the ELM Select online tool, which provides information for the loan programs most frequently used by Stanford students over the past three years.
Please note that you are not limited to lenders listed in the ELM Select tool; you can borrow from any lender. Most private loan programs offer online applications. Here are several points you should research when considering a private loan:
- What is the interest rate; is it fixed or variable; is the rate capped?
- What fees must be paid for this loan and when are they due?
- When does repayment begin and is there a grace period?
- What will my monthly payment be?
- What will be the total cost if I use the full repayment period?
- Are there penalties for early repayment?
- Are there deferment or forbearance options?
- Is the loan program well-established?
Most private loan programs require our office to certify your eligibility before approving your loan. If you receive financial aid, you must notify our office of any private loans you borrow as it may affect your aid eligibility.
Regardless of which private loan program you choose, you will need to complete a self-certification form before receiving your first disbursement of loan funds. Your lender will provide this form to you during the application process. You can also go here to download the Private Education Loan Applicant Self-Certification form.
In Section 2 of the self-certification form, you will be asked to provide the following three dollar amounts:
A. Student's cost of attendance for the period of enrollment covered by the loan
B. Estimated financial assistance
C. Difference between amounts A and B
You can find the amounts for items A and B on your most recent financial aid award letter (available in Axess). For item A, use the figure listed for Total Expenses. For item B, add the Total Grants and Scholarships plus any student loans and federal work-study eligibility that you’ve accepted.
If you have trouble locating these figures, you may contact the Financial Aid Office for assistance.
Final Disclosure and Right-to-Cancel Period
Under the federal Truth in Lending Act (TILA), your lender must provide you with a finalized disclosure statement after you have signed your promissory note. The final disclosure statement confirms the terms and conditions of your loan.
At the time that this final disclosure is delivered, your "right-to-cancel" period begins. During this period of three to six business days, you may cancel the loan by contacting the lender. The lender cannot release the first disbursement of your loan funds until the end of the right-to-cancel period.Updated on February 24, 2015 12:58 PM