The Difference Between Certified and Non-Certified Private Loans
Besides grants and federally funded loans for college, there are also private loans. These loans are divided into two categories: Certified and Non-Certified private loans. While they are similar in that they come from private lenders instead of the federal government, they are slightly different in how the money is actually loaned.
Both loans are tied to the Prime rate which is a variable rate. That means that the interest rate at which the loan is amortized or calculated goes up and down based on the Prime rate. The Prime Rate is set by the Federal Reserve and is the benchmark for various kinds of loans such as mortgage loans and student loans.
A certified private loan will allow you to borrow everything you need for the full cost of attendance at your chosen school while a non-certified private loan will only allow you to borrow up to a certain limit. For example, with the certified loan, you may borrow the money you need for books, student fees, room and board, etc., while the non-certified loan will allow you to borrow, let’s say, $8,000.00 for the school year. That $8,000.00 will have to be disbursed to the proper places such as tuition, books, and room and board, and when that money is gone, you will need to pay the rest from some other means.
Another difference in the two types of loans is that with the certified private loan, the loan amount is certified by the school while with the non-certified loan, the loan qualifications are based on the credit history of the borrower and/or the cosigner. The funds for the certified loan are paid directly to the school and whatever is not used up with tuition and other school charges is then paid to the student. However, with the non-certified private loan, the funds are paid directly to the student.
There are also some other similarities between the certified and non-certified private loans. In the case of both loans, the interest begins to be accrued as the loan is disbursed, the interest payments may be deferred, the unpaid interest will be rolled into the principal at the time the repayment begins, and the repayment for the loan will begin six months after the student has graduated or after the student has fallen below part-time enrollment.
Financial Advisors for higher education urge students to begin with grants and scholarships, then borrow from federally funded sources after having your FAFSA reviewed, and then move to privately funded sources for school loans. In this way, the student will take on less debt and the debt will cost less than if he or she simply begins looking for loans from anywhere that offers student loans.