Vermont Tech strongly recommends that students and families exhaust all other sources of funding, including federal student and parent loans before borrowing private/alternative loans. Federal student and parent loans carry benefits including deferment and cancellation clauses which may not be available on private/alternative student loans. Federal loans typically carry lower fixed interest rates and offer more flexible repayment options.
Private loans are non-federal, credit-based education loans, borrowed from a private lending institution that must be repaid. The loans are typically issued in the student's name with a required co-signer. The maximum amount a student may borrow is the cost of attendance minus any other financial aid or the maximum limit established by the lender. Families are encouraged to fully explore federal loan options, (e.g. Perkins, Direct Subsidized, Direct Unsubsidized, and Direct PLUS Loans), before securing a private loan due to the benefits and consistencies that the federal loan programs provide.
Comparing Federal and Private Loans
In determining which loan is best for your needs, it is important to research and compare loan interest rates and fees, repayment options, and eligibility requirements.
Private Student Loans
- Many private student loans require payments while you are still in school.
- Private student loans can have a variable interest rate, some greater than 18%.
- Private student loans are not subsidized and eligibility for other Federal financial aid assistance cannot be determined without submitting a FAFSA.
- Private student loans may require an established credit record. The cost of a private student loan depends on your credit score.
- You may need a co-signer to get the best possible deal.
- Interest may not be tax deductible.
- Private student loans cannot be consolidated with the federal loan consolidation program.
- You need to make sure there are no prepayment penalty fees.
Federal Student Loans
- Repayment begins after you graduate, leave school or change your enrollment status to less than half-time.
- The interest rate is fixed and in many cases lower than private student loans. View current interest rates.
- Students with greater financial need might qualify for additional financial aid assistance, including subsidized loans (in which the government pays interest).
- No credit check required (except for Parent PLUS loans).
- No co-signer required.
- Some interest is tax deductible.
- Loans can be consolidated into a Direct Consolidation Loan.
- No prepayment penalty fee.
Questions to Ask When Shopping For an Alternative Loan
It's important to ask questions and compare lenders to make the choice that's best for you.
- What is the interest rate and is it fixed or variable?
- What is the maximum interest rate?
- If the interest rate is variable, how often will it change and how high could it go?
- When is accrued interest capitalized (added to principal balance)?
- Is a co-signer required? Will having a co-signer lower my interest rate?
- Is there any application, origination, disbursement or repayment fees?
- What will the minimum payment be?
- How long will I have to repay the loan? Are there any prepayment penalties?
- Are payments required while I am in school?
- What options are available if I can't make my payments due to a job loss or economic hardship?
When a Private Loan is a Good Option
A private loan may be an appropriate choice for you, if:
- You understand and have compared the terms of the Federal Parent PLUS loan and the terms of a private loan offered to you, and have determined that the private loan is a better choice for your family.
- You have applied for the maximum amount of all federal loans suggested to you and still have a difference between the cost of attendance and the total financial aid you have received.
- You are a dependent undergraduate student and your parents will not borrow (or have been denied) a Federal PLUS Loan.
- You owe a balance from a previous semester. You may be able to receive a private loan for an earlier loan period.
- You are an international student with limited borrowing alternatives.
Researching Alternative Loan Lender Options
We encourage students to carefully research and compare private loan options before borrowing. Please keep the following in mind while researching your options.
- Terms and conditions vary widely among lenders.
- Consider contacting lenders or other financial institutions (such as banks, credit unions, or higher education authorities) with whom you already have a working relationship.
- Student Lending Analytics, an independent research and advisory firm has compiled information on private student loans offered by several lending agencies. Visit their website for lender and loan comparisons. They also have links to various state agencies that offer alternative student loan options.
- Many states have a higher education agency that offers financial assistance (grants and/or loans), and/or offers services to assist students in finding and comparing private student loans.
Short Listing of Alternative Loan Lenders:
- Vermont Advantage Student Loan Application/Solicitation Disclosure
- Vermont Advantage Parent Loan Application/Solicitation Disclosure
- Vermont Choice Loan Application/Solicitation Disclosure