University of South Florida

Private Student Loans, also known as Alternative Student loans, help bridge the gap between the actual cost of your education and the amount the government allows you to borrow through the Stafford Loan program.  It is important to remember that before you apply for a Private Student Loan you should first exhaust your Stafford Loan eligibility.   Private loans are offered by private lenders and eligibility for private student loans often depends on your credit score.  As a last resort, families can turn to private student loans when Stafford loans do not cover all of their expenses.
When to Consider a Private Student Loan

1. Consider a private student loan after Stafford Loan eligibility has been exhausted but additional funds are needed to cover remaining expenses.
   

2. Consider a private student loan if your family is in need of 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 federal Parent PLUS Loan program. However, many PLUS loan providers are now starting to allow parents to defer payments on the PLUS loan while the student is in school using an administrative forbearance (be aware that interest continues to accrue during this time).
   

3. Consider a private student loan if you are a student who will be studying overseas in a Study Abroad program and need additional funding for expenses associated with traveling.
   

4. Consider a private student loan if you are a student that is unable to enroll part time to qualify for a Stafford Loan.
   

Be Aware That…

• Private student loans tend to cost more than the student loans offered by the federal government due to a higher interest rate. 

• Check to see how frequently your lender compounds the interest rate on your loan.  A low interest rate that is compounded daily is really a much costlier loan.

• Private student loans can have a variable interest rate as opposed to Stafford loans which offer fixed interest rates that are lower.  Because federal student loans have lower interest rates, exhaust your eligibility for federal Stafford loans before resorting to private student loans.

• Stafford loans also offer better repayment and forgiveness options. Since federal student loans offer better terms than private student loans, exhaust your eligibility for federal Stafford loans before resorting to private student loans.

• Interest on a private student loan begins to accrue upon disbursement, unlike subsidized federal Stafford loans which begin to accrue interest after you graduate or drop below part time enrollment. It is therefore important that you first exhaust your eligibility for federal Stafford loans.

• Private loans require that you have a credit history and verifiable income in order to qualify; if you don not meet these qualifying parameters, a co-signer may be required on the application. 

• It is better to apply for a private student loan with a cosigner even if you could qualify for the loan on your own. 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. So if your cosigner has a much better credit score than you, it could result in a much lower interest rate.

• Fees charged by some lenders can significantly increase the cost of the loan. A loan with a relatively low interest rate but high fees can ultimately cost more than a loan with a somewhat higher interest rate and no fees. (Lenders that do not charge fees often roll the difference into the interest rate.) A good rule of thumb is that 3% in fees is about the same as a 1% higher interest rate.

Private Student Loan Application Process at USF

1. Research the loans and choose a lender that best suits your purpose.  You may choose to begin your research at USF’s Lender List for Private Student Loans so that processing will go smoothly. Consider interest rates, loan fees, repayment terms and any restrictions. Keep in mind that private student loans that require school certification are available to students whose cost of attendance has not already been met with other aid.
   

2. Apply for the loan keeping in mind that credit approvals are good for only 60 to 90 days. Therefore, do not apply earlier than 30 to 45 days prior to the start of the semester. When asked to designate the loan period, check the loan period dates listed on our web site at the top of our Lender List for Private Student Loans, to be sure the dates you enter conform to USF’s loan periods. If you have enrollment circumstances that require you to deviate from these dates, meet with a financial aid counselor to discuss how to proceed.
   

3. If the school’s certification is required, your lender will send us an electronic certification to complete. We will complete the certification and return it electronically to your lender.
   

4. If approved and your lender does not provide electronic signatures, they will mail you an application/promissory note to complete. Return the completed application/note to your lender; do not mail it to the Financial Aid.Office.
   

5. The process normally takes 2 to 4 weeks from the time you apply until receipt of funds, unless you apply more than three weeks before the term has started.  Your lender will send your loan proceeds to us electronically.
   

Receiving Your Private Student Loan Funds

If you have chosen a loan that requires school certification:

• Your loan proceeds will be disbursed through your USF student account.

• Outstanding charges on your student account, if any, will be paid first.

• Any balance remaining will be either deposited to your personal bank account, if you have signed up for eDeposit (log into OASIS--USF’s Online Access Student Information System to sign up for eDeposit) or the Cashier’s Office will mail a check to the address listed for you in OASIS.
  

Repaying Your Private Student Loan Funds

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.

Sample Repayment Chart - $10,000 Loan

Assumptions:

• A constant Prime Rate. As of December 1, 2007 the Prime Rate is 7.5% as published in the Wall Street Journal.

• A $10,000 loan taken out freshman year, one disbursement of $5,000 on September 1 and a second disbursement of $5,000 on January 2.