Looking For The Right Student Loan
As a rule of thumb, college students should only consider getting a private or alternative student loan once they have maxed out the federal financial aid loan program. By filing the free online FASFA application they will ensure all the federal financial aid loans and grants available to them. Once they know they still need additional funds knowing the private or alternative student loan is available is helpful.
The fees that can be charged by some lenders or financial institutions can significantly increase the cost of the alternative student loan. A student loan with a relatively low interest rate but much higher fees will generally cost more than an alternative student loan with a somewhat higher interest rate and no fees. The lenders or financial institutions that do not charge fees will often roll the difference into the interest rate. A good rule of thumb to note is that 3% to 4% in fees is about the same as 1% higher interest rate.
Be cautious of comparing alternative student loans with different repayment terms according to the APR, as a longer alternative student loan term will reduce the APR despite increasing the total amount of interest that will be paid.
The best alternative student loans will have interest rates of LIBOR + 2.0% or PRIME - 0.50% with no fees. Such alternative student loans will generally be competitive with the Federal PLUS College Student Loan. Unfortunately, these rates will often be available only to those borrowers with a great credit who also have a credit worthy co-signer.
Typically, borrowers would prefer alternative student loans that are pegged to the LIBOR index over alternative student loans that are pegged to the Prime Lending Rate, with all else being equal, as the spread between the Prime Lending Rate and LIBOR has been increasing over time. Over the long term an alternative student loan with interest rates based on LIBOR will generally be less expensive than an alternative student loan based on the Prime Lending Rate. About half of lenders or financial institutions will peg their alternative student loans to the LIBOR index and the other half to the Prime lending rate.
The information above should give you a great start to being able to do your research on a private or alternative student loan. Make sure you are comparing apples to apples and you are looking at the fine print. Try to get the best interest rate possible, but also look at the fees that are being charged with these low interest rates. As advised above if you need to pay just a bit more on interest verses the fees you could actually be better off. The point is to be cognizant of the many differences and compare them. There is a good alternative student loan out there for you, but you may have to look around for it. All though private or alternative student loans are becoming more popular there are less financial institutions offering them. Do your research and you will do well.
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