Consider these guidelines for evaluating a private alternative loan program.
Private Alternative Loans
Private alternative educational loans are available from private lenders for students whose cost of attendance has not been met with other financial aid. The Free Application for Federal Student Aid (FAFSA) is normally not required to apply for the alternative loans. Private alternative loan programs differ from Federal Direct Loans in several important ways:
- Annual and total loan limits are higher
- Interest rates are normally variable rates that change on a quarterly basis
- Loans and interest rates are based on credit approval and approval is not guaranteed
- Loans are not federally guaranteed; therefore, do not have the same deferment, cancellation and consolidation benefits
The terms and conditions for private alternative loans vary greatly. Students are advised to compare loan programs before choosing a lender. Interest rates, fees, and other provisions of these programs are subject to change by the lender. Contact the lenders directly for detailed information on individual loan products.
University of Iowa Policy on Private Alternative Loans
The University of Iowa does not promote private educational loans and recommends that families apply for need-based financial aid by annually completing a Free Application for Federal Student Aid (FAFSA). When an undergraduate student's financial aid application is completed, the student will first and foremost be considered for any and all scholarships and grants that are awarded at the discretion of the UI Office of Student Financial Aid (OSFA) before determining the student's eligibility for federal work-study and low-cost federal loans. Students and their families always have an opportunity to inform the UI OSFA if they are not interested in borrowing, in which case any federal loans that had been part of the student's financial aid package would be cancelled.
The University of Iowa has never included any private educational loans as part of a student's financial aid package. The UI OSFA believes and communicates that private student loans should only be considered by a student after they have determined there may be a need to borrow, and that they have first considered each low-cost federal student loan and parent loan opportunity. There are significant and immediate benefits to the federal student loan programs compared to the generally more costly private educational loans.
The University of Iowa is concerned about growing student debt and; therefore, requires students to receive loan counseling with a Financial Literacy Specialist prior to the loan being processed. Excess student debt can negatively impact post-graduate opportunities, including preferred choices of occupations and deciding, or not deciding, to pursue graduate and professional studies. Preferred job locations can be impacted by excess student debt. The University of Iowa advises all students that the best approach is to keep the debt to a minimum, and only for needed expenses, not discretionary choices; and, if needed, consider low-cost federal student and parent loans before considering private educational loans for higher education.
Obtaining a Private Alternative Loan
The entire private alternative loan process can take up to six weeks--two weeks for the student to obtain and complete the application, two weeks for the school to certify the application, and two weeks for the lender to send the loan funds to the University and for the University to process the funds.
- Review all lenders and determine which loan program best meets your needs.
- Obtain the appropriate loan application. Students who complete the wrong application are usually forced to start over with a new application. The school cannot certify the incorrect application. (An example of this would be a student who plans to later enter the MBA program, so they complete an MBA application while they are still a liberal arts student. The school would not be able to certify this application.)
- Accurately complete the loan application. Mistakes on the application create processing delays. Always make sure that you supply the lender with all supporting documentation that they require. In most cases, the application should be sent directly to the lender. They will forward information to the school for certification after they have reviewed your application. All credit decisions are made by the lender, the school is not involved in this process.
- Meet with a Financial Literacy Specialist in the Office of Student Financial Aid to receive required loan counseling.
- Complete a Satisfactory Academic Progress (SAP) Appeal Form, if required. The Office of Student Financial Aid will notify you if an appeal is required.
- Allow two weeks for the school to verify your application after the lender has sent the certification to the school and you have received loan counseling. Although we strive to process all applications as quickly as possible, it can take up to two weeks during the peak processing time.
- Allow two weeks for the lender to send the funds to the school and for the school to process the funds. Although we strive to process all funds as quickly as possible, it can take up to two weeks during peak processing times.
Various Private Alternative Loan Lenders
The University of Iowa Office of Student Financial Aid does not endorse any particular lender. Students may choose any lender of their choice. Students should contact their home state's student assistance agency regarding any state loan programs that may be available, contact their local lending institution, or search online for "private student loans."