Private Loan Programs
A private education loan (or alternative loan) is a credit-based loan that can be used to pay for education-related expenses up to the Cost of Attendance for a specific academic year of enrollment. These loans typically supplement an award package that includes federal loans and/or grants and scholarships. In some instances in which federal loans cannot be awarded, private education loans are used as the only source of funding.
Researching both private loans and federal loans is essential when making decisions about financing your education. When deciding between federal and private student loans, it is crucial to consider factors such as interest rates, repayment terms, loan forgiveness options and eligibility requirements. You should evaluate your current financial situation, future income prospects and long-term financial goals to determine which option aligns best with your needs and specific circumstances. Families should start by filing the Free Application for Federal Student Aid (FAFSA), which may qualify them for federal grants and work-study in addition to federal loans.
Private loan interest rates, terms, conditions, and eligibility requirements will vary. The borrower (and co-borrower, if applicable) should first compare a variety of private student loans offered by banks and other education loan providers and apply only for the alternative loan that best suits his or her needs. If we receive a private loan application and we do not have a FAFSA on file, we will assume that you have made the decision to only pursue financing with the private loan lender.
Please think carefully about your obligations as a borrower before pursuing any educational loan. Consider your educational investment at Drexel, as well as your long-term financial commitments when borrowing.
Deciding that a Non-Federal Private Loan Is for You
A non-federal private loan may be an appropriate choice for you if:
- You have applied for the maximum amount of all federal loans suggested for you and still have a remaining balance or educational-related expense 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 Direct Parent PLUS Loan (see also the Federal Unsubsidized Stafford Loan).
- U.S. government regulations make you ineligible for a federal loan. You may still qualify for a private loan because such programs are not bound by the same federal restrictions. For example, if you are not making Satisfactory Academic Progress, are in default on a federal loan, did not respond to verification requests, are enrolled for less than 6 credits, or are ineligible for federal loans for other reasons, you may be eligible for private loans instead.
- You are in arrears for a semester prior to the current semester. You may be able to receive a private loan for an earlier loan period.
- You are an international student with limited borrowing alternatives. (See our notice to international students below.)
Some private loans do not have full deferment options, so it is best to borrow only the amount that you absolutely need. Individual lenders will evaluate credit history and application fees are generally not refundable.
If you decide to apply for a private educational loan, you must provide all documentation requested by the lender and follow the lender's application instructions.
When applying for a private loan, remember to request the amount of funds you will need for the full academic year. Please do not reapply for multiple certifications throughout the year on a term-by-term basis. If you are participating in your co-op experience during the school year, the Financial Aid Office will certify your private loan to disburse only during the terms in which you are scheduled to attend classes.
Once your application has been received, we will certify your eligibility and schedule the disbursement of funds directly into your Drexel account. Credit checks on alternative loans are only valid for a limited period of time that is determined by the lender. In many cases, the lenders use 180 days.
All private loans will be scheduled for disbursement for terms during which you are in class. The loans will generally not be disbursed during co-op terms.
Eligibility
Here are some questions to consider as you evaluate your loan options: What are the eligibility criteria for private loans? Does the loan require a cosigner? If the loan does not require a cosigner, are there any benefits to having one?
Most lenders rely on the borrower's credit score to determine eligibility for private loans. The most popular credit score is the FICO score, but other criteria may include the borrower's debt-to-income ratio and recent bankruptcies.
Guide to Private Loans
If you are interested in private loans, here are some tips on how to research private loans and some factors to consider when comparing private education loans.
There are many resources available online that you can utilize to find a private lender. For instance, by searching the term "private education loans," you will easily locate general consumer information concerning private loans as well as specific information from major lenders who provide private loans.
If you are not a U.S. citizen or permanent resident, you may have fewer private loan options unless you locate a cosigner who is a U.S. citizen or permanent resident and has a good credit history. Note that some private lenders will provide loans to international students without a cosigner.
What are the minimum and maximum loan limits, including annual and aggregate limits?
Most private lenders require school certification, or approval, which caps the annual loan amount at the cost of education (or your student expense budget) after other sources of financial aid are included, such as scholarships, grants, teaching assistantships, research assistantships, fellowships, other student loans, and Federal Work-Study. Some loan programs have minimum or maximum annual loan amounts in addition to maximums.
We suggest that you borrow only what you need even if you qualify for more.
Is the interest rate fixed or variable? If variable, what is the basis upon which it will vary? Does the rate change every quarter or every month or according to some other time period?
Private loans typically have variable interest rates, with the rate pegged on an index such as LIBOR or PRIME. One method of securing a better interest rate is to agree to make loan payments while you are in school. You may begin repayment immediately or make interest-only payments during the in-school period.
While private lenders might advertise a low interest rate, these rates may only be available to the best credit customers. The actual interest rates and fees you pay on a private education loan are based on your credit score and the credit score of your cosigner, if any. It may be better to apply for a private student loan with a cosigner even if you qualify for the loan on your own because applying with a cosigner usually results in a slightly lower rate.
When does the interest begin accruing? Do you need to pay the interest as it accrues or can it be deferred or capitalized? If capitalized, how often is it capitalized? Is the interest rate the same for the in-school and grace period as it is when the loan enters repayment?
Interest ordinarily accrues from the date of the first disbursement and can be paid while enrolled or deferred and capitalized at the time of repayment.
Be aware of teaser interest rates that disappear when the variable rate indexes start increasing. Be aware how the rates might change over the life of the loan.
Are there any loan fees? What is the impact of any loan fees on the overall cost of the loan?
The fees charged by some lenders can significantly increase the cost of the loan. A loan with a relatively low interest rate but high fees could cost more than a loan with a somewhat higher interest rate and no fees. Some lenders do not charge fees but adjust the interest rate upwards to compensate. Typically an extra 1% in the interest rate costs more than a one-point increase in fees: in fact, a 1% higher interest rate may be the same as 3% to 4% in fees.
What are my repayment options? How long is the loan term? Are there any consolidation options? Are there any borrower benefits?
Repayment options vary across lenders and may include options for standard, extended, and graduated repayment. Find out if there is an optional in-school deferment of the principal amount. Keep in mind that interest will continue to accrue, increasing the amount owed.
Some lenders offer financial incentives or borrower benefits to reduce the price of your loans. For example, there may be principal balance or interest rate reductions tied to repayment performance. Some repayment benefit plans are simple and others are complex. Make sure you understand the terms you must meet and the likelihood of receiving the benefit before choosing a private loan on that basis alone.
Loans with different repayment terms are challenging to compare. The annual percentage rate (APR) may not be a good tool for comparing loans. For example, a loan with a longer repayment term will have a lower APR even though the borrower will pay more interest over the life of the loan.
Is the application process simple and straightforward? Is it possible to reach a knowledgeable representative to check your loan status? Is customer service available 24/7 or at minimum during hours convenient for you? Will the lender handle the origination of the loan as well as the repayment? If not, what organization(s) will?
Some lenders only handle the up-front administration of the loan, including the origination and disbursement. It is common for large lenders to have online application and signature processes, including the required Promissory Notes.
If the lender will not service the loan during the in-school or repayment periods, make sure you know which organization will, its customer service hours, and how to contact representatives, especially if you want to speak to a representative in person.
Since you are about to enter what may be a long-term relationship, it is important that you complete your research and select a loan program with a demonstrated record of excellent customer service.
After you have selected a lender, you will submit a loan application. Be sure you understand the lender's application process, also known as origination, as well as the process by which you receive the funds, known as disbursement.
While Drexel does not have any preferred loan lenders, you can view some Historical Lenders our students have used in the past.
Federal Direct PLUS Loan vs. Private/Alternative Loans
The two charts below will help you compare the Direct PLUS Loan program and private loans.
Federal Direct Parent PLUS Loan vs. Private/Alternative Loans — Information for Parents
| Federal Direct Parent PLUS Loan | Private/Alternative Loans | |
|---|---|---|
| Borrower | Parent of a dependent undergraduate student. | Parent or student is the borrower, depending on who is taking out the loan. May require a cosigner. |
| Credit Review | Minimal credit review, based on federal standards and credit history. Approval is not based on income, financial need, or debt-to-income ratio. | Comprehensive credit review process required. Credit scoring and/or debt-to-income ratio may be reviewed. |
| Repayment | Parent is responsible for repayment. | Parent or student is responsible for repayment, depending on who made the loan application. A cosigner is also equally liable. The loan and payment history are listed on the cosigner's and borrower's credit reports. |
| Interest Rate | For Direct PLUS Loans first disbursed on or after July 1, 2023, and before July 1, 2024, the interest rate is 8.05%. This is a fixed interest rate for the life of the loan. | Variable; can change monthly or quarterly. Usually no cap. |
| Capitalization of Interest | Once at repayment. | Can be as often as monthly. |
| Fees | A 4.228% origination fee is deducted proportionately from each disbursement. Rate is reset annually. | Varies by lender. |
| Discharge | PLUS loans are federally insured and are discharged in the event of disability or death. | Alternative loans are not federally insured and may not offer discharge in the event of disability or death. |
| Payment Options | Payments may be deferred until six months after the student ceases to be enrolled at least half-time. | Payments may be deferred while a student is enrolled at least half-time. Other options may be available from the lender. |
| Deferment and/or Forbearance | Unemployment and hardship deferments are available. | Unemployment and hardship deferments are generally not available. Consult with your lender for more information. |
| Consolidation | Can be consolidated into a federal consolidation loan. | Limited consolidation options available at a variable rate. |
Federal Direct Graduate PLUS Loan vs. Private/Alternative Loans — Information for Graduate Students
| Federal Direct Graduate PLUS Loan | Private/Alternative Loans | |
|---|---|---|
| Borrower | Graduate student. | Graduate student. May require a cosigner. |
| Credit Review | Minimal credit review, based on federal standards and credit history. Approval is not based on income, financial need, or debt-to-income ratio. | Comprehensive credit review process required. Credit scoring and/or debt-to-income ratio may be reviewed. |
| Repayment | Payments may be deferred while a student/borrower is enrolled at least half-time. There is also a six-month grace period before payments are required. | Payments may be deferred while a student (borrower) is enrolled at least half-time. Inquire with the lender if payments are deferrable while attending school and if the lender offers a grace period. |
| Interest Rate | For Direct PLUS Loans first disbursed on or after July 1, 2023, and before July 1, 2024, the interest rate is 8.05%. This is a fixed interest rate for the life of the loan. | Variable; can change monthly or quarterly. Usually no cap. |
| Capitalization of Interest | Once at repayment. | Can be as often as monthly. |
| Fees | A 4.228% origination fee is deducted proportionately from each disbursement. Rate is reset annually. | Varies by lender. |
| Discharge | PLUS loans are federally insured and are discharged in the event of disability or death. | Alternative loans are not federally insured and may not offer discharge in the event of disability or death. |
| Payment Options | Payments may be deferred until six months after student ceases to be enrolled at least half-time. | Payments may be deferred while a student is enrolled at least half-time. Other options may be available from the lender. |
| Deferment and/or Forbearance | Unemployment and hardship deferments are available. | Unemployment and hardship deferments are generally not available. Consult with your lender for more information. |
| Consolidation | Can be consolidated in a federal consolidation loan. | Limited consolidation options available at a variable rate. |
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