What exactly is a university loan and how does it differ from other types of student loans? Perhaps you’ve heard of this kind of loan and want to learn more about it and whether you should apply.
Or maybe you got an offer for this type of student loan directly from your college or university when you were reviewing your financial aid award?
These loans sound like a good deal – but are they? Here are the ins and outs of what to know.
A Brief Explanation of University Loans
University loans, also known as institutional loans, are student loans made by the college or university itself, as opposed to through the federal or state governments. Some may be white-labeled versions of private student loans.
Some may be funded by a special endowment, such as through a revolving loan fund. Others may be funded by a third-party organization, such as a foundation sponsoring zero-interest loans at particular colleges.
Most university loans are similar to private student loans, not federal student loans. Even when the interest rates are competitive, federal student loans offer better benefits. University loans are private loans that just happen to be offered by the college.
Only about 0.4% of students in Bachelor’s degree programs received university loans in 2015 to 2016, with an average loan being $3,420. Less than $1 billion in state and institutional loans are awarded each year, split about half and half among the two types of loans.
Are University Loans Better than Other Loans?
Just because a university loan comes from the college doesn’t mean it is a better loan.
Sometimes university loans offer better interest rates than private student loans, sometimes the interest rates are the same and sometimes the interest rates are worse. All of the terms are specific to the university.
So, you must compare the specific interest rates, fees, and repayment terms for each loan. There may also be differences in the deferment, forbearance, forgiveness and discharge options available on the loans. Most university loans do not offer income-driven repayment plans. Many have low annual and aggregate loan limits.
Some university loans charge 5% interest with no interest accruing during the in-school period and no fees. These loans are modeled after the Federal Perkins Loan program, which ended in 2017.
But, most university loans charge interest rates and fees that are similar to those charged by private student loans.
Federal student loans usually offer a better combination of interest rates, deferments, forbearances, repayment plans, forgiveness and discharge options. Most federal student loans and university loans were not eligible for a payment pause and interest waiver during the pandemic. Private student loans and university loans are not eligible for teacher loan forgiveness or public service loan forgiveness.
Most university loans are not serviced by the college. Instead, the colleges contract with a third-party loan servicer, such as Educational Computer Systems Inc. (ECSI).
An important risk of borrowing a university loan is the college may withhold official transcripts and diplomas and prevent you from registering for classes if you default on the loan.
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Eligibility for a University Loan
Eligibility for a university loan may be based on financial need.
Some university loans are provided to students who are ineligible for federal student loans, such as undocumented students and international students.
Also, university loans may be restricted to a specific purpose such as buying a computer or textbooks.
Some colleges provide university loans as a form of emergency aid. Emergency loans may be short-term, requiring repayment within a few months or by the end of the academic term.
If you decide to look into a university loan, be sure to first find out whether you qualify and what the deadlines are to turn in documents. Then find out what the interest rates and terms for repayment are and when you have to start repaying the loan.
4 Top Picks For Private Student Loan Lenders
- Credible: They are a marketplace that includes over 50% of all student loan lenders, so by getting a quote, you’re automatically comparing most options.
- Ascent: One of the few private loan lenders that offers loans with no cosigner required.
- Earnest: A leading lender that typically has some of the lowest rates on student loans.
- LendKey: Low rates offered through credit unions and community banks.