Private or Alternative Education Loans

While every student wants scholarships and grants, not everyone can cover the entire cost of college or career school through those options. Loans can make your education possible and affordable. However, when exploring your loan options, you should consider federal student loans before any private loans. Federal student loans have lower and fixed interest rates, generous repayment plans, no prepayment penalties and no credit checks (except for PLUS Loans).

If the financial aid a student receives from Baker College will not be enough to cover the costs to attend, the student and their parent(s) can decide to pursue other loan options. Unlike Federal Direct Loans, alternative educational loans are private supplemental loans that are NOT guaranteed by the federal government. Private loans are credit-based, school-certified student loans for undergraduate and graduate student borrowers enrolled at least half time in an eligible associate or graduate program. In some circumstances, the loan is also available for less-than-half-time students. With private loans, qualified students may be eligible to borrow up to the full cost of their education, less other aid received, as certified by the Financial Aid Office at the school.

Do I have to apply for federal financial aid? If eligible to file, Baker College always recommends that a student first file a FAFSA form and accept the federal financial aid offered to them (including the Federal Direct Loan). The federal loan programs will have the lowest interest rate for the student borrower.

In contrast, private loans may be aggressively marketed to students through TV ads, mailings and other media. Private loans are substantially more expensive than federal student loans. They generally have higher variable interest rates that may substantially increase the total amount you repay and the interest rate you receive might depend on your credit score. Private loans also can have prepayment penalty fees.
It is always in a student's best interest to explore federal loan options before applying for private loans. Here are some simple rules to follow when considering a private loan.

  1. All students should file the Free Application for Federal Student Aid (FAFSA) to determine eligibility for grants, work-study, federal loans, and other desirable forms of student aid.
  2. Students should only consider a private education loan if they have reached their federal loan borrowing limit.
  3. Undergraduate students and parents should compare private loan costs with costs for the Federal PLUS Loan.
  4. Graduate students can borrow under the Federal Graduate PLUS Loan and should compare PLUS costs to private education loan costs before applying for a loan.
  5. The financial aid offices at Michigan colleges and universities are staffed with knowledgeable people with years of experience who will be happy to answer your student aid questions.

For more information on deciding if a private student loan is a good choice for you, please view the following Guide to Private (or Alternative) Loans.PDF


Federal Student Loans vs. Private Loans

Federal Student Loans
(Loans from the federal government through the U.S. Department of Education.)

Private Student Loans
(Nonfederal loans from a bank, credit union or other financial institution.)

You will not have to start repaying your federal student loans until you graduate, leave school or change your enrollment status to less than half-time.

Many private student loans require payments while you are still in school.

The interest rate is fixed and is almost always lower than private loans - and much lower than credit card interest rates. For loans first disbursed on or after July 1, 2010, and before July 1, 2011, the interest rate is 4.5% for subsidized loans for undergraduate students and 6.8% for unsubsidized loans for undergraduate and graduate students. The rate for subsidized loans made to graduate students is 6.8%.

Private student loans can have variable interest rates, some greater than 18%.

Students with greater financial need might qualify for a subsidized loan. The government pays the interest.

Private student loans are not subsidized. No one pays the interest on your loan but you.

You don't need to pass a credit check to get a federal student loan (except for PLUS Loans). Federal student loans can help you establish a good credit record.

Private student loans may require an established credit record. The cost of a private student loan depends on your
credit score, which you may not yet have as a student.

You don't need a co-signer (except for PLUS Loans) to get a federal student loan.

You may need a co-signer to get the best possible deal.

Free help is available at 1-800-4-FED-AID and on our web sites. You also have 24/7 access to your loan account information via the internet.

You need to find out if there is free help.

Some interest is tax deductible.

Interest may not be tax deductible.

Loans can be consolidated into a Direct Consolidation Loan. See for more information on consolidation loans and to see if this option will benefit you.

Private student loans can't be consolidated into the federal loan consolidation program.

No prepayment penalty fee.


You need to make sure there are no prepayment penalty fees.

Also, avoid using credit cards to pay for your education. Interest rates on credit cards are very high, payments are due every month and usually don't offer different repayment and deferment (temporarily postpone payments) options. 

The Baker College System