Skip to content

Office of Financial Aid

Understanding Your Award Letter

Alternative Loans

Alternative education loans help bridge the gap between the actual cost of your education and the limited amount the government allows you to borrow in its programs. Alternative loans are offered by private lenders and there are no federal forms to complete. Eligibility for alternative student loans often depends on your credit score and/or your co-signer’s credit score if applicable.

Alternative loans tend to cost more than the education loans offered by the federal government, but they can be less expensive than credit card debt. Federal education loans also offer better repayment and forgiveness options. Since federal education loans are less expensive than alternative student loans, you should exhaust your eligibility for federal student loans before resorting to alternative student loans.

Alternative student loans typically have variable interest rates, with the interest rate pegged to an index, such as LIBOR or PRIME, plus a margin.The interest rates and fees you pay on an alternative student loan are based on your credit score and the credit score of your co-signer, if any. It is better to apply for an alternative student loan with a co-signer even if you could qualify for the loan on your own.

Applying with a co-signer usually results in a slightly lower rate since such loans are not as risky for the lender. Moreover, the interest rates and fees are usually based on the higher of the two credit scores. So if your co-signer has a much better credit score than you, it could result in a much lower interest rate.