Alternative Loans

What you need to know
  • Alternative loans (a.k.a. Private Student Loans) are not part of the federal student loan programs; therefore, federal guarantees and benefits may not apply. Benefits to borrowers are at the sole discretion of the lender.
  • Alternative loans are more expensive than a federal student loan and should only be used when all other federal and state alternatives have been exhausted. This includes student searches for private scholarship funds.
  • San Diego Mesa College does not and will not certify an alternative loan to any student without a current aid year FAFSA on record and his/her federal aid eligibility determined and processed.
  • The role your personal FICO score will play at the time of determining your interest rate. The score takes into consideration the borrower’s repayment history, amount of credit allowed, the highest debt balance, borrowing patterns, over the limit accounts, bank over-drawings, etc… and accepted as standard that:
    • A borrower with a FICO score of 640 is less likely to default on their financial obligations.
    • Borrowers with a FICO score of 350 - 600 have a higher default rate on their financial obligations. The interest rate for these individuals is higher than the lowest published interest rate.
  • The time in which the interest rate will be determined:
    • At the time of signing the promissory note (present time) or,
    • At the time of repayment (unknown date and personal financial circumstances).
  • The type of interest rate:
    • Prime Lending Rate uses US Treasury Bill and the Federal Reserve rates for adjustable rates.
    • Libor Lending Rate  uses the daily stock market fluctuations as indicator for adjustments to adjustable interest rates.
  • The kind of interest rate assigned to the loan:
    • Fixed Interest Rate will not change from the time of signing the promissory note until paid in full.
    • Variable Interest Rate will change according to the terms in the promissory note. Make sure that you understand the terms of a variable interest rate.
  • The lender's loan limit.
    • Many lenders allow a student to borrow from as little as $500 to $40,000. Each lender will publish their aggregate maximum borrowed loan limit.
  • The student's loan limit is determined by the following formula:
    • Published Cost of Attendance / Budget  any other aid = Student's Alternative Loan Limit.

If after exhausting all other alternatives you feel you must take an alternative loan, we recommend that you review the following tips:

Tips on what you need to do:
  1. Search the internet for a list of banks that provide students with alternative loans. San Diego Mesa College will not provide a list of lenders for students to choose from.
  2. Know if the lender provides you with pre-approved loan information without representing a commitment to take the loan.
  3. Does the lender participate on the FFEL Program? (Federal Family of Educational Loan Programs). This will make your lender more familiar with federal guidelines for the federal student loan programs and might be more inclined to offer alternative loans benefits similar to the federal program.
  4. Create a table and log the following information from at least three (3) alternative loan lenders from which you are most likely to borrow from.
    1. Borrower Eligibility Requirements
    2. Loan limits
    3. The interest rate offered
    4. Upfront Fees Assessed to the loan
    5. Repayment Terms (The starting date and length of time to repay)
    6. Co-signer requirement, if any
    7. Repayment Incentives
    8. Special Options