The Office of Student Financial Aid Services understands that paying for education can be challenging and confusing. We offer these tips to help families who need to borrow loans to cover the cost of education, and to find the best possible options.
Before applying for an alternative loan (private loan), it is recommended that federal loan eligibility be exhausted. Eligibility for the Federal Direct Stafford and Federal Perkins Loans is based on the results of the FAFSA and funding availability. Parents and graduate students can qualify for the Federal Direct PLUS Loan.
Federal Direct Stafford Loans
Federal Direct PLUS Loans
Federal Direct PLUS Loans are available to parents of undergraduate students. Graduate students may also borrow PLUS Loans on their own behalf. Federal Direct PLUS Loans have a fixed interest rate of 6.31% for 2016-17, and 7% for 2017-18. The parent (or graduate student) is the borrower. Repayment begins within 60 days of the second disbursement. However, you may defer payments on Federal Direct PLUS Loans while the student is enrolled at least half-time. Click here for more information on PLUS Loans.
- Federal Direct PLUS Loans are often a better option than alternative loans for several reasons, including:
- Their interest rate is fixed at 6.31% for 2016-17 and 7% for 2017-18. Many alternative loans have variable interest rates with no cap.
- Federal Direct PLUS Loans carry some special benefits not found in alternative loans. They have certain mandatory deferment periods and can be cancelled if the borrower becomes totally and permanently disabled or dies. Many alternative loans remain the responsibility of the student, even in these instances. This is an important factor to consider, especially if you need to borrow a large amount.
- Federal Direct PLUS Loans require a credit check. However, eligibility is not based on your credit score. You may not qualify for a Federal Direct PLUS Loan if you have adverse credit, have declared bankruptcy within the last five years, or have ever defaulted on a student loan. If your parent applies for a Federal Direct PLUS Loan and is denied, you may be eligible for an additional Federal Direct Unsubsidized Stafford Loan (maximum $4,000 for freshmen and sophomores, $5,000 for juniors and seniors).
- Parents with adverse credit may apply for a Federal Direct PLUS Loan with a credit-worthy endorser. This may be a good option if your parent is denied and the additional Unsubsidized Stafford Loan is not enough to cover your needs.
Alternative (Private) Loans
Alternative (private) Loans are loans you may wish to consider as a last resort or if your parent (co-borrower/co-signer) has excellent credit. These loans are not regulated by the federal government. The interest rates and credit criteria vary, depending on the loan product. The student is the borrower for most alternative loans. However, most students will need a credit-worthy co-borrower. The interest rates on alternative loans are typically variable (subject to change either monthly or quarterly). The rates may be based on Prime or LIBOR (London Interbank Offered Rate). More information on these rates can be found online. The interest rate on alternative loans usually depends on your credit score and that of your co-borrower. Students with higher credit scores may qualify for better interest rates. Even if you can qualify on your own, you may wish to consider adding a co-borrower for the best possible interest rates and lowest fees. Information on alternative loans can be found here.Though UConn offers a list of suggested lenders, based on interest rates, borrower benefits, and customer service, you are free to borrow through any private lender for non-federal Alternative Loans. We encourage you to ask questions of any alternative lender you are considering.
A few questions you may want to ask before choosing a loan product include:
- What will my interest rate be?
- Are interest payments required while I am in school (they are required on some Alternative Loans)?
- Are there any fees associated with this loan? If so, when are the fees taken out?
- Who services your loans? Will my loan be sold to a different servicer?
- What borrower benefits do you offer? If the benefits are based on on-time payments, will I lose the benefit if I am late?
- How long have you been in the business of providing student loans?
- If I return to school after leaving or if I’m having financial difficulty, are there any options to postpone my payments? Note that most alternative loans have very little, if any, postponement options after you graduate or withdraw. Federal loans are much more generous with deferments and forbearances to temporarily postpone payments.
Additional tips on choosing an alternative loan product include:
- Look for loans with up-front discounts. Some loans offer discounts that you must earn. Others offer discounts to all students up front, such as a reduced interest rate or waived fees.
- Know yourself! If you are someone who can pay every single payment on-time, you may benefit from earned discounts (such as discounts after a certain number of on-time payments). Most students have trouble making every single payment on-time, so take this into consideration.
- Think about customer service. You will most likely have a very long relationship with your lender. It is crucial that the lender offer excellent customer service and that the lender has been in business for a while. You want to make sure that your lender will continue to remain in the student loan business at least as long as they hold your loan.
- Beware of direct-to-student alternative loans! You may receive mail from lenders and you have probably seen commercials advertising “easy to obtain” student loans. These loans typically have higher interest rates than loans that require school certification. Be sure to research any loan carefully before applying. Remember that in most cases, you should exhaust all federal loan options before considering any alternative loan.
- Borrow conservatively. Only borrow the full amount that you absolutely need for the school year. Our staff can assist you in determining the amount you should borrow.