Families that need additional funding for educational expenses after exhausting all potential scholarships, federal grants, work-study funds, and federal loans may want to consider an “alternative” or “private” loan. Such loans are offered by private lenders, such as banks and credit unions. Families are advised to use these loans sparingly and only after discussing their particular situation with SFS staff.
For alternative/private loans, students apply directly to lenders. Those lenders, in turn, contact Yale, and the two parties work together to issue the loan funds through the university.
Selecting a Private Lender
Unlike loans available through SFS, which are federally guaranteed or offered from Yale funds, alternative/private student loans have terms that vary from lender to lender. It is important to ask questions when deciding to borrow a private loan in order to compare the terms and choose the one that best fits your needs.
Given the current credit market and economic conditions, many lenders are no longer participating in alternative loan programs. For this reason, Yale has identified alternative loan lenders that our students have borrowed from in the past three years and who are still providing alternative loans. ELMSelect provides a comparison of the different lenders, which you can use to evaluate lenders and select one that suits your loan needs. This is not a list of recommended lenders but is rather a list of those lenders used by our students over the past three years. You are free to choose any lender, and SFS will process a loan for you from any lender.
The federal Truth in Lending Act requires a lender to obtain a self-certification signed by the applicant before disbursing a private education loan. The school is required on request to provide the form or the required information only for students admitted or enrolled at the school. Access the Private Education Loan Self-Certification Form.
Best Practices in Applying for Alternative Loans
Prepare your information to apply
Prior to starting the process, collect the information below so that you can finish your application in one sitting. You will need:
- Current address and phone number
- Social security number
- Driver’s license number
- Employment information (if applicable)
- Personal reference (name and contact information)
Find a co-borrower
Identify a co-borrower who will strengthen your application. Most applicants will need to apply with a co-signer to meet current credit requirements. Even though one may not be required, you may want to consider a co-signer with a strong credit history willing to take on that responsibility. This will make a difference in the pricing of your loan.
Assess service and benefits
There are a number of factors you should assess and compare when selecting an alternative lender. You should pay particular attention to customer service and borrower benefits, which can help in your decision making.
Because you are about to enter into what may be a long-term relationship with a lender, it is important that you select a lender with a demonstrated record of excellent customer service.
The term “borrower benefits” is commonly applied to financial incentives provided by individual lenders to reduce the price of your loans over time. These benefits may vary from lender to lender. When making your choice, it is important to compare benefits and ask the following questions:
- What is the actual (calculated) benefit and how much money will you save?
- Is it easy to qualify for the savings?
- Does the benefit begin immediately without restrictions or does it go into effect after 24 or more consecutive on-time payments?
- Are you required to sign up for ACH (automatic withdrawal or “auto-debit” from your savings or checking account) in order to qualify for the benefit?
- How do you lose the benefit (thereby losing the savings) and, once lost, can you regain the benefit?
Apply for several loans
Plan on applying for up to 3 or 4 different private loans. Research shows that it pays to compare, because both interest rates and fees can vary based on your and your co-borrower’s credit scores. Please note, however, that applying for more than one loan can negatively impact your credit score if you never follow through with borrowing. When “rate shopping,” if you complete at least one of the loan application processes within 30 days, the inquiries will not affect your score.
Finish applying with the lender
After choosing a lender, complete the promissory note electronically on the lender’s website. The lender will then notify Yale of the pending loan application and the school will certify the loan.
- Credit-based: Interest rate will be based on your and/or your cosigner’s credit. The better your credit rating is, the lower your interest rate will be.
- Variable interest rate: The interest rate is subject to change and the rate may go up or down based on changes in the market.
- Payment term: The length of time you have to repay the loan. The lender sets the repayment term. Some lenders may give a grace period after leaving school of several months before repayment begins.
- Interest accrual: Interest starts to accrue as soon as the loan is disbursed. This has a large impact on the total loan cost. Lenders may have different terms for capitalization of interest (adding the accrued interest to the principal). Some may capitalize interest quarterly, some once a year and others may do so only after the borrower has left school.