During the course of your college career, you may find that the financial aid for which you qualify doesn't quite cover all of your college costs. After you've exhausted all of your other options — including federal, state, and institutional grant and loan programs and other sources of funding — you might consider a private, or alternative, loan.

Before you go down this path, keep in mind that private loans generally cost more than federally-guaranteed loans. And they may have generally less-favorable repayment terms. Also, remember that there are a multitude of private loan options available, each of them unique. If you are considering a private loan, you'll need to do your homework to decide which one is best for you.

Here's some information to help you to make an educated decision about borrowing a private loan. In reviewing it, you'll:

• Learn some of the key differences between federally-guaranteed loans and private loans,
• Discover factors by which you can compare the various private loans, and
• Understand how to apply for a private loan.

How does a private loan differ from a federal loan?
Private loans differ from federal loans in a variety of ways. For a private loan, you will have to complete a promissory note and submit it to the lender, at which point the lender will perform a credit check to determine whether your credit rating is favorable enough to approve the loan. If you have adverse credit, or lack sufficient credit history, your application may be denied or you may be asked to provide an endorser (also known as a co-signer) with a good credit rating in order to qualify.

There are a number of other important differences. Chief among these are the loan fees and interest rates, which are generally higher for private loans. Also, repayment terms are not generally as flexible for private loans as they are for federal loans. In addition, deferment options may be limited; and few lenders offer options to discharge (forgive) the loan under certain circumstances.

The following table lists some differences between private and federally-guaranteed loans to keep in mind as you make your decision about whether to borrow a private loan. To weigh your options, review the "Questions to ask" column for each factor.

How do I compare private loans?
Let's say that you have exercised all other available options and decided that you must borrow a private loan to meet your educational expenses. Now, you should begin researching the various private loans available to decide which one to apply for. Make sure that when you consider the various loan terms, you compare apples-to-apples so that you can make the most informed decision possible.

For each private loan that you research, find out the following information.

• Interest rates: What is the interest rate on the loan? How often does it vary and how is it calculated? When does interest begin accruing? If I cannot afford to make payments while attending school, will the interest be capitalized (added to the principal) and, if so, how often does this capitalization occur?
• Loan fees: What are the loan fees? How are they collected-are they charged to me or subtracted from my total loan amount before my loan proceeds are sent to the school?
• Repayment terms and period: When will I begin repayment on the loan? Can repayment be postponed until after I graduate or leave school? What are my various repayment options? How long will I have to repay my loan? If I use the maximum repayment period, what amount of interest will I pay over the life of the loan?
• Repayment incentives: Are there any rewards for a certain number of on-time payments in terms of principal reductions, interest rate reductions, or forgiveness of remaining balances below a certain amount?

How do I apply for a private loan?
Before borrowing a private loan, carefully consider your debt and repayment obligations on all loans. Determine how much you need to borrow by working out a budget for your educational costs and subtracting all your resources for those costs.

Remember: Borrow only what you need. Private loans must be repaid in addition to any federal loans you may borrow. You should not, and will not be permitted to, borrow a private loan for more than your cost of attendance for the period of enrollment (usually the school year) minus any other federal, state, and institutional aid you have or will be awarded for that period.

If you've decided to apply for a private loan, here's an outline of general steps to follow to begin the application process.

• Contact your financial aid office to inform them of your private loan application. Although it is not a type of federal financial aid, a private loan may impact your eligibility for other types of aid.
• Check with your lender regarding an online application/promissory note process. Keep in mind that the lender may need additional documentation to determine whether you qualify for the loan. If an online promissory note is not available and the lender instead sends you a paper promissory note, follow directions for completing and returning it.
• Contact your lender's customer service center with questions regarding interest rates, loan terms, etc.
• Maintain your application and loan records in one file to help you track your application, and, if approved, your loan obligations.
• Borrow only what you need. Be an informed borrower. Know the total amount you have borrowed, the interest rate applicable to your loan, and your repayment requirements for all loans you borrow.

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