Two main types of private student loans are currently in existence: “school-channel loans” and “direct-to-consumer private loans.”
Offering the applicable student a lower interest rate, a school-channel loan can involve a long and frustrating process for all parties concerned. Essentially there is a requirement for certification by the applicable students school before the process can begin.
It is the role of the school to sign off for the level of funds that will be borrowed by the student, and it is the school to whom the bank or credit lending organization will directly deposit the funds to prior to the release to the student.
Alternatively and indeed much more popular of late is the option to obtain a private student loan in the nature of direct-to-consumer. As the title would suggest there is zero requirement for the educational establishment to be involved nor to certify the process before funds are released to the student from the banks or credit organizations, and ultimately the funds are directly released to the student.
As a direct result of the lack of certification required, the student will be forced into repaying at a higher rate of interest than is the case for school-channel loans, however the access to these funds is far more simplified and easier for the families of the student in question.
The key risk involved with direct-to-consumer private loans is that of misuse. With no requirement for school certification, the possibility remains that the student may misuse the funds as opposed to using them for their main intent and purpose – to support the successful education experience of the student.
The market for direct-to-consumer loans is a fast growing one – and something that US legislative authorities are looking to crack down on sooner rather than later.
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