Student Loan and Private Loan FAQs

Private Student Loans

How do I know if I need an alternative or private student loan?

Once you have completed the financial aid application, your school will notify you with information about the aid for which you are qualified. After considering any scholarships, grants, savings or earnings, you may still have expenses for your education that are not covered. Student loans are typically used for these expenses. You should start by using any federal student loans (such as Perkins, Stafford and PLUS) for which you qualify, as these loans have better terms and lower interest rates. However, many of these loans have borrowing limits, so if your educational expenses are still not covered, you can use a private student loan to cover the rest. Search for a private student loan and compare multiple options here.

Am I eligible for any borrower benefits?
To qualify for borrower benefits, you may have to meet criteria specified by the lender. Some examples of these requirements are:

• A certain number of consecutive, on-time payments
• Automatic direct debit of your monthly payment from a checking or savings account

Check with each lender to see how and if you qualify for borrower benefits offered.

What are borrower benefits?
Borrower benefits, or loan discounts, can save you money on your loan. Review the example below to see how borrower benefits can change the pricing on a loan. Common borrower benefits include:

• Rate reductions
• Waiver of fees
• Principal reductions
• Cash rebates
• Waiver of final payments

There are some benefits that you get just for taking a particular loan, while others you must earn. Lenders can require you to follow certain rules in order to qualify, such as using a bank account to automatically pay (debit) you monthly payments and/or making all of your loan payments on time.

Will the money from the private loan be sent to the school or to me?
When you apply for a private student loan, look for whether the loan is certified or uncertified. A certified loan requires verification by your school that you are not borrowing more than the total cost of education, less other aid received. Loan funds for certified loans are generally sent directly to the school. An uncertified loan does not require your school to certify any aspect of the amount borrowed (but will require verification of your enrollment at that school). The loan funds are usually sent directly to you. Make sure to speak with the financial aid office at your school for the school’s refund policy, including how and when the refund would be sent to you.

How does the application process work?
Once you decide on a lender and know how much you want to borrow, you can either apply online or call the lender directly and complete an application over the phone.

To complete an application for a student loan with most lenders, you will need the following information:

• Your full name, social security number and date of birth
• Your permanent address and the number of years you have lived there (no P.O. boxes)
• The amount of your monthly rent or house payment
• Your home phone number
• Your current occupation and position
• The name of your employer and how long you have been employed by them
• The business phone number of your employer
• Your gross annual income
• The contact information for a reference (name, address, home/business phone number)
• The name of your school (or the school the student for whom the loan is for is attending)
• The social security number, contact and employment information for your co-signer (if applicable)

After your application is approved, the lender may send a request to your school to verify your enrollment. If it is a federal loan that you have applied for, you will then be notified by the lender to complete a Master Promissory Note (MPN). Depending on the type of loan you requested, the funds may be sent directly to you or your school. If the school receives the funds, and additional proceeds remain, the school will mail you a refund check.

Do I need a co-signer for a student loan?
For federal student loans, such as Perkins or Stafford, you do not need a co-signer. For private student loans, you should apply with a credit-worthy co-signer to increase your chances of approval and possibly improve the rate and fees you are offered. Some lenders require you to apply with a co-signer regardless of your income or credit rating. You'll need to look at each loan program for these requirements. Applying with a co-signer may also help you receive a lower interest rate and better terms on your loan offer.

Most lenders will require a borrower to have a strong credit score (good to excellent) in addition to other criteria such as no negative credit history (such as missed payments), debt-to-income ratio (amount of debt vs. your current income) and even proof of current employment and income.

So, if you are an undergraduate student without sufficient personal income or credit history, you'll almost certainly need to apply for a private student loan with a credit-worthy co-signer.

What should I know about borrower benefits?
Borrower benefits can make a significant difference in the cost of your loan. Make sure you research the fine print on a lender's borrower benefits, and follow any requirements set by the lender to qualify. Industry reports suggest that only 10% to 20% of borrowers actually achieve borrower benefits. Lenders are often counting on borrowers not earning the benefits – prove them wrong! Here are some potential pitfalls:

• Failure to continuously pay on time
• Discontinuing the use of automatic payments from a checking or savings account for the monthly payment
• Not understanding the definition of "on-time" payment
• Cancellation of borrower benefits by the lender or the sale of the loan to another lender
• Failure to continue to meet the requirements for the borrower benefits means you may owe the lender the amount saved from using the benefits.

For more information on borrower benefits, check with your lender.

How much can I save with borrower benefits?
Borrower benefits can have a significant impact on a loan's total cost, monthly payments, APR, and more. The following illustrates how a sample $5,000 loan differs on monthly payment, total cost, number of payments, and APR once various types of borrower rewards are applied.

Sample $5,000 Loan - Examples of Possible Savings for Typical Borrower Rewards

	No rewards	On-time payments 3.75% Principal Reduction after 36 on-time payments	Auto-debit of payments 0.25% Interest Rate Reduction for automatic debit of payments
Monthly Payment	$61.19	$61.19	$61.19
Number of Payments	120	116	114
*Total Cost of Loan	$7,342.95	$7,044.85	$6,938.36
1st Payment Due	Sep 2010	Sep 2010	Sep 2010
APR	5.39%	4.92%	4.74%

*The Total Cost of the Loan will change based on a combination of the monthly benefits and APR for each type of reward.