Alternative Loan

An alternative student loan (also known as a private loan) is a private educational loan offered by private lenders, such as banks and credit unions. Alternative loans generally follow different guidelines than Federal Direct Stafford loans. Below are some differences between alternative loans and Federal Direct Stafford loans.

Alternative Loans

Federal Direct Stafford Loans

  • Lender sets the terms and conditions
  • Terms and conditions are set by the federal government
  • Loan terms vary from lender to lender
  • Loans are guaranteed by the federal government
  • Generally have a higher variable interest rate
  • Federal government determines the interest for the loans
  • Higher interest may increase the total repayment amount
  • Repayment plans vary
  • Interest received will depend on your credit score
  • No credit check required
  • May have prepayment penalty fees
  • No prepayment fees
  • Repayment may begin while in school
  • All payments can be deferred for 6 months

Before applying for alternative loans, students should consider lowest-cost options first, i.e. grants and scholarships (which do not have to be repaid) and federal direct loans (which have low, fixed interest rates).

Steps for Receiving an Alternative Loan:

Each lender has its own process, but generally follow these steps:

(effective Feb. 14, 2010)

Step 1.Select a lender. Go to www.elmselect.com. Select SJSU and agree to their terms and click on the tab "Private." There is a sample list of lenders used by SJSU students in the past. The applicant will then contact the lender and complete an application.

Step 2.The lender will complete a credit check and make an approval or denial. The lender will contact you if any additional information or if a co-signer is needed.

Step 3.The applicant will receive various disclosure statements from the lender explaining interest rates, terms, fees, and total cost of the loans. These disclosure statements will be sent at least three (3) times throughout the application period.

Step 4. Once the applicant has been approved and the lender has received the promissory note, the lender will notify SJSU and request SJSU to complete a certification form. The form verifies the student's: enrollment data, cost of attendance and estimated financial assistance. Students are encouraged to contact the Financial Aid and Scholarship Office to inquire about the status of the certification process.

Step 5.The lender will also require the applicant to complete a "Self Certification" form. Below is the information required for a student to complete their Self Certification Form:

  • Cost of Attendance (COA) for period of enrollment: View SJSU COA. If you are applying for one semester, divide the COA in half.
  • Estimated Financial Assistance (EFA): If you are a financial aid applicant and have already been awarded, this figure is all of the aid added together for the period of enrollment. Includes grants, loans, and federal work study (include work study if currently employed through the program). Check your MySJSU for current figures. If you are not applying for federal aid and are an  international student, enter zero. 

Example:
COA: $22,886
EFA: $14,876 (student awarded Pell Grant, State University Grant, and Stafford Loan)

Step 6.A final disclosure statement will be sent to the borrower once the lender receives all forms.

Step 7.The loan enters into the Rescission Period. The Rescission Period is a three (3) business day wait period that begins when the applicant receives the Final Disclosure. The intent of the Rescission Period is to allow applicants a final opportunity to evaluate their need for a private student loan and/or cancel the loan without penalty. Lenders cannot disburse any funds until this period ends.

Step 8.Based on the time for an applicant to receive the Final Disclosure and carry out the Rescission Period, most lenders will not disburse funds until approximately seven (7) days after Final Disclosure is issued. Please be aware of these time lines.

Step 9.Disbursement of alternative loans will come in the form of a paper check made payable to the University and the borrower. The Bursar's Office will contact the student once the alternative loan check is received.