What is a private loan?
Private loans are through lending institutions and are not part of the federal student loan programs. Private loans are more expensive than the federal student loans and should only be used as a last option after all other options have been exhausted. Private student loans are made in the student's name, and usually require a co-signer.
We would encourage you to set up an appointment with a financial aid counselor before you borrow a private loan to ensure that you have examined all possible options. Unless you have unusual circumstances, we would always recommend that you borrow your maximum eligibility under the federal student loan programs before you turn to a private loan. If you decide you need a private loan, choose a loan that best meets your needs and borrow only what you need. Remember you will be required to pay back these funds.
When contacting a private loan lender, you may want to have some questions prepared so that you can compare the different alternative loan programs.
Questions you should have answered before you borrow:
- Are there up front costs or origination fees?
- Will the interest begin accruing while I am in school? What is the current interest rate and does it fluctuate?
- If I miss an interest payment is there a penalty?
- How soon do I start to make payments on the principal and/or interest? (Although you will probably be paying interest on your alternative loan once it is disbursed, the principal on most private loans does not have to be repaid until 6 months after you are out of school.)
- How do the terms of this loan compare to terms of other private loans?
Keep in mind:
- You may want to consider a loan with up front costs if the interest rates are lower depending on how long you will be borrowing the money.
- The terms of some private loans are not set until the credit check is done. Be aware that lenders post their best interest rates and the approved interest rate may be different.
- The maximum you may borrow is equal to your financial aid budget minus your other financial aid.
How Do I Choose a Lender?
Choosing a lender is an important decision, one that will affect you for the life of your loan. If you have previously borrowed a private loan, we recommend you continue to borrow funds as needed from this lender to avoid multiple loan payments.
If you are considered a Dependent student for financial aid, we would encourage you and your parent(s) to consider a Federal Parent PLUS Loan before considering an alternative loan.
If you are a Minnesota Resident, and have no prior alternative loans, we would encourage you to use the SELF Loan.
If you have no prior private loans, you may use FASTChoice to help you chose a lender. However, you are free to use any alternative loan lender of your choosing.
To view the University of Wisconsin System policy on institutional and employee relationships with educational loan lenders, follow this link: http://www.uwsa.edu/bor/policies/rpd/rpd13-5.htm