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Private Loans

Are Private Loans Right for you

Private Education Loans, also known as Alternative Education Loans, help bridge the gap between the actual cost of your education and the limited amount the government allows you to borrow in its programs. Private loans are offered by private lenders and there are no federal forms to complete. Eligibility for private student loans often depends on your credit score.  Students and families are encourage to take advantage of all federal and state sources of funding prior to the use of private loans.

Some families turn to private education loans when the federal loans don't provide enough money or when they need more flexible repayment options. For example, a parent might want to defer repayment until the student graduates, an option that is not available from the government parent loan (PLUS) program.

Private education loans tend to cost more than the education loans offered by the federal government, but are less expensive than credit card debt. The federal education loans offer fixed interest rates that are lower than the variable rates offered by most private student loans. Federal education loans also offer better repayment and forgiveness options. Since federal education loans are less expensive than and offer better terms than private student loans, you should exhaust your eligibility for federal student loans before resorting to private student loans.

Private student loans typically have variable interest rates, with the interest rate pegged to an index, such as LIBOR or PRIME, plus a margin. The LIBOR index is the London Interbank Offered Rate and represents what it costs a lender to borrow money. The Prime Lending Rate is the interest rate lenders offer to their most creditworthy customers. A rate of LIBOR + 2.8% is roughly the same as PRIME + 0.0%. The spread between LIBOR and PRIME has been growing over time. So all else being equal, it is better to have an interest rate pegged to the LIBOR index, as such a rate will increase more slowly than a rate pegged to the PRIME index.

The interest rates and fees you pay on a private student loan are based on your credit score and the credit score of your cosigner, if any. Generally, if your credit score is less than 650 (FICO), you are unlikely to be approved for a private student loan. An increase of just 30 to 50 points in your credit score is often enough to get you better terms on your loan.

It is better to apply for a private student loan with a cosigner even if you could qualify for the loan on your own. Just applying with a cosigner usually results in a slightly lower rate, as such loans are not as risky for the lender. Moreover, the interest rates and fees are usually based on the higher of the two credit scores. If your cosigner has a much better credit score than you, it could result in a much lower interest rate.

UDM students who intend to borrow a private loan must complete a private loan application with the lender of their choice. Most lenders have online applications available. Once the student completes the application, if the lender approves the student to borrow the loan, the lender will forward the loan application to UDM for certification.  In addition, borrowers must complete a Private Education Loan Applicant Self-Certification Form for the lender.

Graduate and professional students are encouraged to consider their borrowing options through the Graduate PLUS loan program before borrowing a private loan. It is also strongly recommended that all students borrow conservatively.

Lender Selection

You have the right to select any lender you wish for an alternative/private loan.  Many lenders offer attractive terms and conditions which you can find by searching the internet.  As always, UDM recommends that students review all options and make educated borrowing decisions.

UDM has partnered with ELM Resources to process private/alternative loans on the behalf of students at the University of Detroit Mercy.  ELM Resources maintains a comprehensive list of lenders that have been used by our students during the past few years.  This is by no means an exclusive list of lenders.  The University of Detroit Mercy does not recommend any particular lender and encourages students to compare different lenders to find the one that best fits their individual needs.  You have the right to select any lender of your choosing.

Once you have selected your lender you can begin the loan process by completing the application on ELMSelect.  UDM will be notified of your request and will complete the school certification.  If you choose a lender not on ELMSelect, you should coordinate your application process with UDM's Loan Coordinator.

Private Educational Loan Disclosures

In accordance with 34 CFR 668.14(b)(29)(ii), an institution must, upon the request of the applicant, discuss the availability of Federal, State, and institutional financial aid.   Financial aid advisors in University of Detroit Mercy's Scholarship and Financial Office are happy to discuss with students and prospective students, and their parents, the financial aid options available to them.  Students and parents may qualify for loans or other assistance under Title IV of the Higher Education Act programs.  The terms and conditions of Title IV HEA program loans may be more favorable than the provisions of private educational loans.

The Higher Education Opportunity Act of 2008 (Pub. L. 110-35) (HEOA) added section 128(e)(3) to the TILA to require that before a private educational lender may consummate a private education loan for a student in attendance at an institution of higher education, the private education lender must obtain the completed and signed Self-Certification Form from the applicant.  The Federal Reserve Board’s Final Regulations published on August 14, 2009 incorporate this new requirement at 12 CFR 226.48(e).   Many lenders of private loans will provide the Self-Certification Form to the student borrower.  The form is also available here in pdf format:

Private Education Loan Self-Certification in PDF Format:  http://ifap.ed.gov/dpcletters/attachments/GEN1001A-AppSelfCert.pdf

Truth In Lending for Private Loans