Over the past several years, many colleges and universities within the tri-state region have seen an increase in students inquiring about alternative loan programs. Students are searching for alternative means to finance their education due to the rising cost of education and stagnant loan limits. They are quickly turning to alternative loans (also known as private loans and supplemental loans) to bridge the increasing gap between the total cost of attendance at their institution and the financial aid they have received.

Generally, students rely on their financial aid office to provide them with an alternative loan program that will suit their needs as a borrower and one that they will qualify for. It is difficult for financial aid administrators to predict who will qualify for an alternative loan and who will not, unless the administrator understands how the approval process works. Although the approval process may vary slightly among providers, it is based primarily on private credit approval. This approval is usually a combination of credit score, debt-to-income ratio, employment history, and income (if no co-signer). According to Fair, Isaac and Company (FICO), credit scores are calculated by using scoring models and mathematical tables that assign points for different pieces of information which best predict future credit performance. Most credit bureaus use FICO to analyze information such as; late payments, length of credit history, the amount of credit used versus the amount of credit available, employment history , and negative credit information to determine a FICO score. Alternative loan providers examine the borrowers FICO score to ultimately determine the student’s eligibility for the loan.

In addition to how the approval process works, it is also important that the financial aid administrator know all of the options available to the student and how they compare with one another. The simplest way to compare alternative loan programs is to look at the Annual Percentage Rate (APR). The APR encompasses all costs of borrowing including: the interest rate, fees, borrower benefits, interest capitalization, repayment term, and loan amount. The APR is designed to reflect the real cost of borrowing for the student and allow the student to evaluate all alternative loan programs on a level playing field.

Applying for an alternative loan can be an overwhelming process for students and it is imperative that financial aid administrators provide students with as much guidance as possible. The best tool that Financial Aid Administrators can offer is to be a knowledgeable resource for their students as the need for alternative loans will only increase in the future.

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