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Alternative Credit-Based Loans

Private educational loans (alternative loans) are credit based loans provided by nationally recognized lending or banking institutions to eligible students. It is recommended that students first complete the Free Application for Federal Student Aid (FAFSA) to be considered for the Federal Direct Subsidized, Unsubsidized or PLUS loan programs prior to applying for an alternative loan.

The Federal Direct PLUS Loan Options

Federal Direct PLUS loans are credit based federal loans made available through the U.S. Department of Education. It is recommended that you compare the terms of this loan with any private loans you are considering prior to making a decision on what loan product best meets your needs. The Federal Direct Parent PLUS loan is available to dependent Undergraduate students enrolled in Bachelor's programs. The Federal Direct Graduate PLUS Loan is available to Graduate students enrolled in Master's or PhD programs. In many cases the PLUS loan is a more advantageous loan than a private loan because of the number of borrower benefits it offers. Some of these benefits include:

  • A fixed interest rate.
  • Maintaining the same lender as your Federal Direct Subsidized or Unsubsidized loans.
  • A number of repayment options including extended plans giving you more time to pay off your loan, graduated plans allowing you to start with a lower monthly payment, or if you qualify, a repayment plan based on the amount you actually earn.
  • The ability to defer repayment of the loan until you graduate, drop below half time, or leave school.
  • Options that allow you to temporarily postpone or lower your monthly payments if you are experiencing a financial hardship
  • No prepayment penalties if you are able to pay your loan off early.

Federal Student Aid, an office in the Department of Education, provides information on PLUS loans and how to apply for them. To speak with a counselor about your options, please contact the Office of Financial Aid at 202-885-6500.

Tips for Comparing Lenders

American University does not have a preferred lender list. You may apply with any lender of your choosing. However, you are responsible for comparing the terms of the loans you are considering and selecting the loan that will best meet your needs. The following are some tips for you to consider when evaluating your options.

What is the interest rate on the loan?

Some loans, like the Federal Direct Loans, have a "fixed" interest rate meaning that the rate will not change over the life of the loan. Many alternative loans will have a variable interest rate, meaning that the rate can change over the life of the loan based on market rates. Variable interest rates can increase significantly resulting in higher minimum monthly payments or more payments over the life of the loan.

Are there any fees for the loan?

Some common fee names are origination fee, disbursement fee, or default fee. Some lenders may have a sliding scale of the fee that is charged based on the strength of your credit.

Are there any front end or back end benefits?

Front end benefits are discounts offered up front when the loan is disbursed. This can be a reduction of fees or a rebate. Back end benefits are discounts offered when the student goes into repayment. These might include an interest reduction for auto-debit payments. It is best to focus on discounts which you can't lose or on discounts that are immediate. Be aware of fine print that requires you to repay a fee rebate if you consolidate with another lender or charge a penalty to pay off the loan early (pre-payment penalty).

How long will it take to process the loan?

Find out from your lender how long it typically takes to process a loan application and whether it is a paper process or an electronic process. A paper application process can take 6-8 weeks if an original document needs to be mailed back and forth.

What kind of customer service will be provided?

Lenders can let you know their average response time and satisfaction ratings. Many lenders will also now provide self-service options via telephone or the internet allowing you to get information on your loans even faster.

Will my loan be sold to a different lender in the future?

Some lenders will hold the loan for the life of the loan, guaranteeing you their service until you finish repayment. Other lenders may sell your loan to a new servicer.

Step by Step Application Process

  • Submit a loan application directly to the lender of your choice. Please be sure to indicate that you will be attending American University. Applying with a credit-worthy co-borrower can enhance your credit rating and lower your interest rate and fees.
  • The maximum loan amount is the amount of the total Cost of Attendance (COA) not covered by other financial aid. You should apply for the amount you will need for both the fall and spring semesters. Your lender will disburse the loan proceeds to American University in equal disbursements each semester.
  • Your lender will complete a credit check and advise you of the decision. If, for any reason, you feel that you may have difficulty with this credit check process, please contact the Office of Financial Aid at 202-885-6500 to discuss your alternatives. It is important, given the lengthy processing time, that you explore your options and have a back-up plan in the event your loan application is not approved.
  • After initiating your application with the lender, a pre-printed promissory note will be provided to you by the lender. Sign and return the promissory note to the lender. Some lenders may allow you to sign your promissory note electronically via your lender's website. A signed promissory note is required prior to disbursement of loan funds.
  • Once approved, your lender will forward your application to the Office of Financial Aid at AU. We will certify the loan to verify your enrollment and eligibility and return the data to your lender. The maximum loan amount we can certify is the lesser of: the total COA not covered by other financial aid; the maximum amount allowed by your lender; or the amount you requested.
  • Loan funds will be applied to your student account when American University receives them from your lender. Funds will be sent to AU via a paper check. You will be notified by the Office of Financial Aid if this check requires your endorsement. Student enrollment is verified prior to disbursement.
  • As loan processing depends on operations inside and outside of AU, please allow 6-8 weeks processing time. Please contact your lender with any status inquiries.
  • All non-federal loans require a new Private Education Loan Applicant Self-Certification form. This form must be completed by the student, signed and returned to the lender before any funds can be disbursed. Your lender may provide a blank form to you as part of the application process. You may also contact the Office of Financial Aid to speak with a counselor if you have any questions on how to complete this or if you would like to discuss your loan options in greater detail.
  • The lender must provide an application disclosure, an approval disclosure and a final disclosure. You will receive these throughout the application process. Keep these disclosures in your files for future reference.
  • A "rescission period" is mandated by the federal regulations. The intent of the rescission period is to allow borrowers a final opportunity to evaluate their needs for a private student loan and/or cancel the loan without penalty. Lenders cannot disburse funds until the end of the rescission period so schools will not be able to schedule disbursements until the expiration of the rescission period. To allow for applicants and cosigners to receive the Final Disclosure in the mail, the first date that a loan can be scheduled for disbursement may be a week or longer from the date that the lender mails the Final Disclosure. The actual time frame for disbursement will vary from lender to lender.