If you find the rules governing certified student loans are too restrictive, you have a way out. There are student loans which are not governed by federal law.
The law in the US requires that the Federal funding for direct student financing are used exclusively for education and other related expenses. The loan amount has to be certified by the school before it is disbursed, that is, the educational institution has to verify that the amount borrowed is required to meet only expenses related to education.
Certified loans are cleared through a centralized clearing house called the National Student Loan Clearinghouse. Schools and lenders who qualify have access to this protected database. Lenders can check out the course which the student has enrolled for and ensure that the loan amount is not more than the cost of program at this particular school. Lenders can also check up whether the student is receiving any other funding and that the funding received is only used for the purpose of education.
The main difference between uncertified and certified student loans is that in the case of the latter, the money is not released to the student, who is the borrower, but to the school. The school, in turn, remits the money into the student's account. If there is any money left over, it is passed on to the student for education related expenses such as other fees, supplies and books. In the case of the uncertified student loan, the student can utilize the money for these expenses whenever he or she wants to.
Another advantage in the uncertified loan is that the limits are higher than that of the certified loan. The student can avail of the funds at one go and the school or university will have no say in how much the student is borrowing.
On the flip side, uncertified student loans come at interest rates that are higher. However, students opt for these loans when they have exhausted all other options, especially since scholarships and grants are not easy these days. This would be attractive for students who, in most cases, find the restrictions on the federal student loans irksome.
The first thing to remember when you are applying for an uncertified student loan is not to borrow too much. The school has no role to play in this transaction and the student will get the money directly from the lender. The onus is on the student to use the funds for the purpose for which they have been borrowed, that is, for the payment of tuition fees first and then, use the money left over for expenses connected with the course, such as books, buying a laptop and living expenses. Students are advised not to misuse these funds or delay the paying of fees.
So how does one get the uncertified student loan ? The student will need a person to co-sign the loan and both will have to have a credible credit history. The school should be an accredited American institution. These loans are governed by very strict rules and regulations so it's best the borrower understands the conditions before applying for such a loan.