Loan Borrowing

You’ll want to be sure you ask all the right questions when you consider borrowing an alternative loan.

It is difficult to compare the various alternative loan programs offered because they each differ in features and methods used to assess costs. Certainly, cost is a major factor. However, cost is not the only issue, and potential borrowers will want to review the specific features available for each loan under consideration, including the opportunity for deferment or the options for repayment period length. These considerations can affect the affordability of the loan.

It is also important to understand the eligibility criteria. There is no point in incurring an application fee cost for a loan that will ultimately be denied due to lack of a co-signer or failure of creditworthiness.

Evaluating an alternative loan program: Questions to ask

THE LOAN PROGRAM

• What is the name of the loan program?
• What is the name of the lender sponsor (bank), address, phone number?
• Who services the loan?
• How long does it take to process the loan?
• Who can the borrower call or write with questions or problems?

ELIGIBILITY CRITERIA

• Who is eligible to borrow the loan: student, parent? Does the applicant have to be creditworthy?
• Is a co-signer required? Does the co-signer have to be creditworthy?
• What are the enrollment requirements (undergraduate, graduate; full or part-time; in a degree program or just taking courses)?
• Are there any other eligibility requirements that could affect the student (citizenship, for past or just current bills)?

LOAN AMOUNTS

• What is the maximum loan per year?
• Does need or other aid have to be taken into consideration?
• What is the minimum loan?
• What is the aggregate amount that may be borrowed (for multiple years)?

BORROWING TERMS

• How is interest determined: fixed or variable rate; formula used?
• Is there an interest rate cap?
• How frequently is the interest rate adjusted?
• What is the current interest rate? When will it be adjusted again?
• What other fees are charges (application, origination, guarantee, insurance)?
• Are fees added to the loan balance or deducted from the loan fees?
• What is the Annual Percentage Rate (APR)?

APPLICATION PROCESSING

• Where do I get an application?
• Is school certification required?
• Do I apply by mail, phone, fax, or the Internet?
• What is the application renewal process for additional years?
• Does the loan need to be secured, or is it unsecured (with a borrower asset)?

LOAN DISBURSEMENT

• When are the loan proceeds given to the student: all at once or each term?
• Where are the loan proceeds sent to the borrower or to the school?
• Is the loan disbursement made payable solely to the borrower or co-payable to the school?
• In what form will the proceeds be delivered to the school: check or electronic fund transfer?

REPAYMENT

• Is interest deferred while the borrower is enrolled?
• Is the principal repayment deferred while the borrower in enrolled?
• When does repayment begin and what are the monthly payments? How long is the repayment period?
• What repayment options are there: fixed or graduated schedules; interest only or interest and principal?
• What is the interest capitalization policy? When is this done and how often?
• Can the loan be consolidated with other loans?
• What privileges are there for deferments and forbearance: situations available and length of time?

UNIQUE FEATURES

• What sets this loan apart from all others?
• Are there features that are offered up front, such as reduced fees or interest rates for certain conditions?
• Are there features offered on the back end (when repayment begins), such as direct repayment from checking or on-time payment incentives to reduce interest rate charged?
• Is it possible to arrange for a multiple year loan?