Private/Alternative Student Loans
Private Loans vs. Federal Loans
Private education loans may have significant disadvantages when compared with federal education loans. We encourage you to first borrow any federal loans for which you are eligible. Homeowners may also want to consider a home equity loan first.
Please keep in mind the following facts about federal education loans as you consider your options:
- Federal student loans are required by law to provide a range of flexible repayment options, including, but not limited to, income-based repayment and income-contingent repayment plans, and loan forgiveness benefits, which other student loans are not required to provide.
- Federal direct loans are available to students regardless of income.
To gain a better understanding of how federal and private loans may fit into your overall strategy for paying for college, you may want to go to the online Learning Center provided for Stanford students and families by the Association of Independent California Colleges and Universities (AICCU).
|Federal Loans||Private Loans|
|Co-Signer Required?||Perkins/Stafford: No
PLUS: Usually no
|Credit Check Required?||Perkins/Stafford: No
PLUS: Yes (limited)
|Deferment Options||Several options guaranteed by law||Depends on program|
|Grace Period||Perkins: 9 months
Stafford/PLUS: 6 months
|Depends on program|
|Interest Rate||Fixed||Usually variable|
|Loan Fees||Perkins: No fees
Stafford: up to 1.5%
PLUS: up to 4%
|Depends on program|
|Loan Forgiveness Options||Several options guaranteed by law for Perkins and Stafford||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 California Private Loan Marketplace, also provided by the AICCU. Click on the "SHOP" icon to begin your comparison. Another resource for finding active private education loan programs is FinAid.org.
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?
- How will I receive my loan funds?
- 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 probably 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 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 July 15, 2014 10:52 AM