Can You Get a Student Loan with Bad Credit?
Whether as a result of poor choices or devastating financial circumstances, people sometimes end up with poor credit that can follow them throughout their lives. Low credit scores affect most aspects of modern life, and students in particular may have trouble getting the financial assistance they need for school thanks to a history of bad credit. Fortunately, students have options when it comes to educational funding even if they don't have a good credit score. The following offers helpful tips on finding the funding necessary for a fresh start at school.
Start with the Facts
Before beginning the loan process, students should start with a clear picture of their credit report and score. Credit scores determine how financial institutions and loan officers will perceive a student's ability to repay a loan. Lower scores indicate a higher risk while higher scores indicate responsibility. In any case, students need to know where they stand with lenders. Even those with a particularly low credit score and a history of poor credit can rebuild their financial standing, but they need to start early and understand their scores. Experian, Equifax and TransUnion are the three credit reporting agencies. According to federal regulations, everyone may request a free copy of their credit report from each of the three agencies once per year. However, students should note that these agencies provide a report only without a credit score; credit scores are available for a charge from several legitimate entities.
After students receive their credit reports, they should review them for accuracy. Mistakes happen all the time, and credit reporting agencies sometimes include irrelevant information or even serious mistakes on a person's official report. Reviewing a credit report will help a student catch errors so that he or she can address any discrepancies. Credit reporting agencies allow people to submit discrepancy reports. It's important to note that each reporting agency is governed by a different organization, and reports may differ. Students who notice errors on any of the reports should call the individual agency to report the discrepancies.
Consider Government Funding
Most private lenders will deny loans to students with bad credit because they consider these borrowers extremely high risk. Instead of choosing the private route for student loans, those with lower credit scores should seek government funding. The U.S. government offers several options for students in need regardless of credit history. The Federal Stafford Student Loan awards students a certain amount of money depending on student status to help offset the cost of tuition and fees. The amount of the Stafford loan depends on the year of school. For example, students at the first year level will be awarded less than those in their third year of school. The Stafford loan can be partially subsidized, which means the government will forgive a certain amount of money for students who show particular need. Unsubsidized loans must be repaid, but students typically have six months from their graduation to begin repaying the loan. The six-month period is interest-free.
Approach Private Lenders Carefully
For students who still want to pursue private lenders, it's important to keep in mind that many banks and private financial companies do not forgive bad credit as easily as the U.S. government does. Still, there may be other options for students who need additional funding for school. Those with bad credit will see much higher repayment terms and interest rates than those with good credit, and banks in particular may be more inclined to award a personal loan versus a student loan. Personal loans usually need to be repaid immediately and at increased terms whereas student loans typically have a built-in deferment option. Students who pursue the private lending route should keep these things in mind to make sure they receive a student loan rather than a personal one.
There are other options for students who need school funding. The government offers a Federal Parent Loan for Undergraduate Student or PLUS loan that may help deter costs, but students should be aware that repayment for this loan requires a higher interest rate and does not come with a deferment option. Other alternatives including asking for help from close friends or family members who can cosign a loan on your behalf. Cosigning is a big responsibility, and this option should only be reserved in case of real need. Finally, students should seek other options for student funding in the form of scholarships and grants as these options do not require repayment.
Meet with a School Adviser
Throughout the lending process, students should meet with their chosen school's financial loan officer to discuss all of the options. From private funding to government assistance, there may be choices available that a student won't be able to find on her own. Loan officers who work for an educational institution help students specifically, and they know all of the avenues a student can explore to find the right funding. They can also help students fill out the appropriate applications and understand the difficult terminology that accompanies most loan applications. Plus, many schools work with the federal government and other private lenders to offer loans at better interest rates or lower terms than those offered by private institutions outside of the school.
When students do take out loans, they need to remember to borrow only as much as they need to attend school and pay for relevant fees. It can be tempting to take out a little extra for padding purposes, but everything borrowed must be returned. A little extra adds up, and students may find that they stay in a bad financial situation due to poor borrowing techniques. Students accrue less interest by borrowing less. To pay for costs not covered by loans, students may find work on campus or as part of a work-study program. Borrowing judiciously ensures that students can manage the payments after graduation.
Work on Credit in the Meantime
Regardless of whether students borrow from the federal government or a private institution, those with poor credit scores and bad credit should continue to work on improving their scores in the meantime. Speaking with a financial adviser, a trusted friend or a credit repair agency could help students work through financial issues to achieve success. Poor credit happens over time, and good credit builds up over time due to better financial choices and determined effort. Creating a budget, keeping spending in check and paying off debt will go a long way toward improving one's credit score. Students who begin their education with loans may end their academic careers without them thanks to proper financial planning.