Looking for Student Loans When You Have Bad Credit
Trying to go back to school after hard times can feel like a real catch-22. You know that furthering your education will help get you back on your feet, both mentally and financially, but you'll need a loan first... and the hard times you just went through have left you with bad credit. What can you do? Are there student loans out there for people whose credit is poor?
The Best Option for the Bad Credit Challenge: Federal Student Loans
The U.S. Department of Education financial aid program is the largest source of loans to help students pay for college. In fact, there is quite a bit more federal funding available than you might think because many students who could take advantage of federal financial aid never even apply, leaving thousands of dollars in federal student loans up for grabs each year.
Here's the best part, though: some federal loan programs don't require credit checks to qualify.
Federal Stafford Loans and Federal Perkins Loans: No Credit Check Required
The federal Stafford loan is the very first student loan you should apply for. It's available to a wide range of students, offers a number of benefits specific to federal funding, and doesn't require a credit check to apply.
Stafford loans can be either subsidized or unsubsidized. On a subsidized Stafford loan, the Education Department will pay the interest on your loan while you're in school and for the first six months after you leave school. To qualify for a subsidized Stafford Loan, however, you must meet the Department's definition of proving financial need. Don't worry: if your financial need is not great enough to qualify for the subsidized Stafford loan, you can still apply for the unsubsidized version. Also:
- Working professionals and grad students may qualify for Stafford loans of several thousand dollars a year.
- Students with financial need whose can still be claimed as dependents of their parents may qualify for Stafford loan limits that increase with every year of study.
- Dependent students whose parents have been turned down for a PLUS Loan may actually be awarded more money through a Stafford loan anyway.
- Independent students may qualify for even more funding than dependent students can receive.
Another federal student loan that does not require a credit check is the Perkins Loan, although the eligibility restrictions are a little tighter. Federal Perkins loans are reserved for students with exceptional financial need who are applying to on-campus education programs.
FFELP and FDLP
Federal student loans are administered through two programs, the Federal Family Education Loan Program (FFELP) and the William D. Ford Federal Direct Loan Program (FDLP).
FFELP loans are obtained from banks, credit unions, and education finance companies that have received subsidies from the Department of Education in order to offer students lower interest rates and fees. Your school may recommend preferred lenders, but you're not obligated to use any of them. You can apply to any financial institution that participates in the FFELP.
FDLP loans are essentially the same as FFELP loans except that the money you're borrowing will come from the U.S. Department of Education, which certain banks will arrange to lend you on the Department's behalf.
In either case, you apply by filling out the FAFSA, the Free Application for Federal Student Aid.
Generally, the terms of federal loans make them a good investment, whether you have good credit or poor:
- You'll get lower interest rates and fees compared to private loans.
- The federal government will pay your interest payments while you're in school.
- You may not need to make loan payments while you're in school.
- You get longer, better repayment terms.
Juggling a Private Student Loan and Bad Credit
While you're working to repair your credit, it's unlikely that you'll do any better with a private loan than you will with a federal loan. Federal loans are by far your best bet, whereas eligibility for reputable, manageable private loans is almost always credit-based. If you do have to seek a private loan, however, evaluate your options very carefully and read all the small print. Any private loan that seems too good to be true—especially for someone who has bad credit—almost certainly is.
Tips for obtaining a private loan while coping with poor credit:
- Ask someone who trusts you and whom you trust to be a co-signer on the loan with you. This will include the both of you signing a promissory note as well. Your co-signer does not have to be a parent or guardian, but he or she must have good credit.
- Once your student loan payments begin, don't ever miss a payment and make every payment on time. These two commitments, fulfilled conscientiously, will go a long way to repair your credit while you pay off your loan. Customarily, once you've made 48 consecutive on-time loan payments, your lender will release the co-signer from the loan. (Ask your lender to provide a co-signer release clause in the loan.) After that, every payment you only enhances your improving credit.
Reestablishing Your Good Credit History
After you graduate, do everything you can to continue paying back your student loan reliably and on time. If you run into difficulty repaying your loan, or anticipate that you may, talk to a bank or a lender about a student consolidation loan. The federal government offers consolidations loans through its direct lending program.
CourseAdvisor Can Help
Many of the schools listed on www.courseadvisor.com have financial aid departments that can help you get a student loan if you have bad credit. For more information, and to get matched to a school that meets your needs, go to CourseAdvisor's "Match Me!" section today.
Don't let bad credit discourage you! A college degree or graduate degree always pays off in the long run, and repaying a student loan may help you repair bad credit at the same time.
1) Federal Family Education Loan Program (FFELP)
2) Student Aid on the Web: Federal Financial Aid