Private Education or Alternative Education Loans are used by families to help pay the cost to attend college when other financial aid is not enough or when they want different loan terms than what is offered by the government loan programs. We recommend that you consider private loans only after you have borrowed the maximum amounts allowed through the government student loan programs, like the Perkins and Stafford Loan programs. Parents should carefully consider whether the PLUS Loan program (which is usually less expensive over the long term) is a better option than a private education loan or a home equity loan. Then if you still feel you need to borrow one of these loans, you'll need to look beyond the lender's marketing materials to research your private loan options. Here are a few pointers to keep in mind:
Most private loans offer a variable interest rate tied to either the LIBOR or PRIME financial rates. For now, a rate of LIBOR + 2.8% is roughly the same as PRIME + 0.0%. Generally, it is better to have an interest rate pegged to the LIBOR index, as such a rate will increase more slowly than a rate pegged to the PRIME index. The interest rates and fees you pay on a private student loan are based on your credit score and the credit score of your cosigner, if any.
Usually, you will get a better interest rate if you have a cosigner even if you could apply for the loan on your own. The best private student loans will have interest rates of LIBOR + 1.8% or PRIME - 0.50% with no fees. Unfortunately, these rates often will be available only to borrowers with great credit who also have a creditworthy cosigner. It is unclear how many borrowers qualify for the best rates.
Private student loans are counted in the financial aid calculation and must be reported to our office. You can use a private loan to replace unmet need or the calculated family contribution on your award letter without lowering your other aid. If your private loan is more than your cost of attendance minus your other aid, then either we will reduce your UW financial aid, or you will need to return some or all of the private loan.
The fees charged by some lenders can significantly increase the cost of the loan. A loan with a relatively low interest rate but high fees can ultimately cost more than a loan with a somewhat higher interest rate and no fees. (The lenders that do not charge fees often roll the difference into the interest rate.) A good rule of thumb is that 3% in fees is about the same as a 1% higher interest rate.
It is important to ask the lender how often the interest is capitalized on the loan (capitalization occurs when deferred interest is added to the principal so you will end up paying interest on the interest that had accrued on your loan). The frequency of capitalization can affect the overall cost of the loan and can vary among the different loan programs.
For most private loans, you apply on-line directly to the lender, the lender asks us to certify your costs and enrollment information and then if the lender approves your loan the funds are sent to the school to disburse to you. If you borrow a loan that does not go through the school, then you'll need to report the amount you borrow to our office.
Federal regulations now require most private educational loan borrowers to complete a self-certification form prior to the loan being finalized. The self-certification form is intended to promote "informed borrowing" by educating borrowers about financial aid availability and encouraging them to seek advice from the financial aid office about other forms of aid before taking out a private education loan.
You may obtain the self-certification form from your lender or from the Financial Aid Office. This form requires you to obtain information regarding your cost of attendance and the amounts of financial aid assistance that you are receiving from other sources (such as grants, federal loans, and scholarships). Information necessary to complete this form is available on your MyUW account in the "Financial Aid Status" section. You will be asked to provide the following financial aid information from MyUW: “Total Budget”, “Resources” (do NOT include Expected Student and/or Parent Contribution) and “Total Aid Offered”.
If you have not completed a FAFSA, or have any questions regarding the self-certification form, please contact our office.
Federal regulations require a three business day "right to cancel" period, beginning after you receive your final loan disclosure from your lender. Lenders cannot release your first loan disbursement until after this time period has passed. This waiting period applies to most private education loans. We encourage students who are applying for a private education loan to do so several weeks in advance to ensure funds are received to pay tuition, housing, etc by their respective due dates.
The University of Washington cannot recommend a lender or lenders to you to use for your private loan. We don't know the absolute best deal for you-the lenders and the terms of the loans change frequently and your credit score is unknown to us. Instead you can use the following tools as a way to compare lenders and the loan products they offer. We are happy to help you understand the private loan process, especially how it relates to your other financial aid, so please contact us if you have questions.
Lenders on the list below are not recommended by the UW, rather they are offered to provide sources of lender options.
Finaid.org. Finaid.org provides information (they provided many of the tips above) about student loan borrowing and a comparison chart of many of the private loans available.