It’s not uncommon for students or their parents to suffer from bad credit. As a result of the recession, many people lost their jobs, cars, homes and more, resulting in nearly 25 percent of consumers suffering from subprime credit scores.
Unfortunately, when applying for private student loans, having a bad credit score could be a major hindrance. This is why it’s important for students and parents to understand what options are available in bad credit student loans.
About Bad Credit Student Loans
Students or parents who apply for student loans with bad credit may have their work cut out if they go to a private lender for assistance since virtually all private lenders will check an applicant’s credit to ensure that they’re not too risky. But this doesn’t guarantee that a prospective borrower will be rejected. It probably does mean that if the risky borrower is accepted, they will have to deal with a high interest rate or a lower loan amount.
An option that a borrower with bad credit could consider is getting a co-signer with good credit. In most cases, a bank or credit union will look upon this action favorably and then be willing to distribute the loan with fewer restrictions.
Direct Parent PLUS Loan
Another option for students and parents to consider if they want to take out a loan is the Direct PLUS Loan for Parents. While this loan does require the parent to go through a credit check, if their credit history is bad, they may still receive a loan with a co-signer.
To be eligible for the PLUS Loan, a parent borrower must be the student’s biological or adoptive parent and the dependent student must be unmarried, enrolled as an undergraduate student at least half-time at a school that participates in the Direct Loan Program and under 24 years of age with no dependents.
Also, both the parent and student must be U.S. citizens or eligible noncitizens and cannot be in default on any federal education loans. The annual loan amount for the PLUS Loan is equal to the student’s cost of attendance minus any other financial aid received.
No Credit Check Student Loans
The good news is that there are options for students who don’t want to bother with bad credit student loans. The Federal government currently offers the Stafford Loan and Perkins Loan, which are available through the Free Application for Federal Student Aid (FAFSA).
The Stafford Loan is the first loan option that students should consider if trying to attend college. This loan comes in subsidized (for those who demonstrate financial need) and unsubsidized (for all students regardless of financial need) forms and offers a wide spectrum of loan amounts. But most important, students are not required to go through a credit check to qualify for the loan, which means it’s great for families with bad credit.
The Federal Perkins Loan Program is offered to students with exceptional financial need. Also a loan that does not require a credit check, it is subsidized with low interest rates. Perkins Loans have a maximum loan amount of $5,500 per year and $27,500 over a lifetime for undergraduates. Graduates receive up to $8,000 per year and $60,000 over a lifetime, including their undergraduate loans.
If students are interested in additional loan options, they could consider state-based loans. While they will vary greatly in eligibility requirements and loan amounts, they could offer some great supplemental options to those who want to apply to college with bad credit.
Grants and Scholarships
Even better than taking out student loans is applying for grants and scholarships. Both grants and scholarships are distributed with no strings attached, meaning that they do not have to be repaid.
The most popular grants given by the Federal government are the Pell Grant and FSEOG; however, there are tons of other options available to students via private institutions like businesses, companies and organizations. Grants are usually offered to students in financial need, but also could be offered to students of specific ethnicities or those with special circumstances like disabilities.
Scholarships, on the other hand, are usually offered to students who have proved themselves academically. However, they could also be distributed for any reason as determined by the distributor.
There’s no doubt that options could be a bit limited for students wanting to attend college with bad family credit. But alternatives are definitely out there and should be taken advantage of before assuming nothing can be done.