Securing alternative student loans with bad credit is often portrayed as being extremely difficult, but the process can be easier and simpler than you think. In fact, there is a decent chance that you will be able to receive student loans from programs that will gladly lend you money even if you do not have suitable or satisfactory credit circumstances.
Alternative Student Loans With Bad Credit
Going or Returning to School
No matter whether you are going to school for the first time or continuing your education, credit is a lasting reality that affects your chances of getting a loan and the conditions behind the loan.
If you are a teenager or a young adult, you may think that you are immune from bad credit due to your age. That is an incorrect assumption, as anyone who has held a job, paid a bill, or owned a credit card will have a credit history. Because they usually do not have much information on their credit reports, young people are more likely to have bad credit because one slip-up, such as a late payment on their credit card, could adversely affect their credit scores in a significant way. They also do not have the wisdom and information that adults do to help them achieve the best credit rating possible.
With today’s economy and job market in the gutter, it is understandable if someone wants to return to school in order to increase his marketability for better jobs. The economic atmosphere also means that people’s credit ratings have plummeted as their budgets and income have dwindled. Returning students who want to go back to school need not be completely discouraged about their chances of getting a student loan with bad credit. Alternative student loans for bad credit are an option for new and returning students alike.
Bad Credit and How It Affects Your Student Loans
Credit histories and credit ratings are financial institutions’ ways of grading your creditworthiness, and can affect your ability to secure different kinds of loans such as auto loans, mortgages, and student loans. They also affect what rates and conditions you receive on credit.
For every individual, banks and other financial institutions use many calculations to come up with a credit score, which is a number that summarizes how good or bad your credit history is.
Many factors make up your credit score. Your credit score will be higher if you have maintained a lengthier credit history. It is also beneficial if you only use a small percentage of your total credit and if your payments have been on time. Your credit score will be dinged if you owe large amounts of debt on your lines of credit.
Credit scores range from between 300 and 850, while the median American score is about 720. If your score is below a 620, you will be considered a “subprime” borrower.
If you are labeled as having bad credit, you will not have the options of taking out many student loans that have stringent requirements for them. Nearly all private lenders of student loans will not lend to you if you have bad credit. You will also receive an unfavorable interest rate on your loans.
Alternative Student Loans for Students With Bad Credit
While you will not receive the best rates or conditions, student loans for those with bad credit are available if you do your research and leverage the good credit of someone close to you.
All private student loans require a credit check. The vast majority of private loans that are reputable and respectable only lend to those with good credit. If you have bad credit, you may be able to find a private student loan, but it will have a sky-high interest rate and many restrictions on how you use your money and when and how you must pay it back. These student loans are not worth it and are considered scams by some. If you decide to go this route, make sure you read all the terms and agreements for the loan before signing a promissory note. There may be small print that says the lender can dramatically increase your interest rate at some point down the road.
Another option when evaluating alternative student loans for bad credit is finding a co-signer. A co-signer is someone you mutual entrust with the loan, and is usually a parent or other family member. A co-signer with good credit can open doors for you when finding student loans. With a co-signer, you may be able to access student loans that you couldn’t have gotten by yourself, or you can receive better rates and conditions. Your co-signer must sign the loan’s promissory note with you.
The best alternative student loans for students with bad credit are those doled out by the government. The U.S. Department of Education gives financial aid in the form of low-interest federal loans that do not require any credit checks at all. The two largest types of federal student loans that are given to those with bad credit are Stafford Loans and Perkins Loans.
Federal Stafford Loans
Direct Stafford Loans are great loans that are incredibly flexible and can be applied to almost any type of educational setting. The loans are given out by the U.S. Department of Education and can cover the costs of higher education at any community college, trade school, technical school, career school, or traditional four-year college or university.
Stafford Loans can be subsidized or unsubsidized. Subsidized loans are reserved for students who demonstrate financial need, and the borrower is not charged interest while he or she is in school, on a grace period, or on a deferment plan. Unsubsidized Stafford Loans are charged interest upon inception.
Independent undergraduates can borrow up to a combined $57,500 from the Stafford Loan program. Dependents can borrow up to $31,000, and students pursuing a graduate or professional degree can receive up to $138,500 in loans.
Loan money is paid through your school and is used on tuition, fees, room, board, and other fees. If there is any money left over, you can receive it as cash.
Currently, the interest rate for a direct subsidized Stafford Loan is 3.4 percent, while the rate for a graduate, professional, or unsubsidized Stafford Loan is 6.8 percent. The Department of Education offers flexible payment plans and will consider loan deferments, forbearance, and cancellation on an individual basis.
Federal Perkins Loans
Perkins Loans, unlike Stafford Loans, are only given to students who demonstrate exceptional financial need. Perkins Loans are given out by individual schools using government funds.
The maximum loan amounts are $5,500 per year up to $27,500 total for undergraduates, and $8,000 a year up to $60,000 total for graduate students.
Perkins Loans offer a nine-month grace period – the time after you leave or graduate school – during which you do not need to repay your loan. The interest on Perkins Loans is 5 percent.
How Do I Receive These Alternative Student Loans?
It’s easy. There is an application for all federal student loans called the FAFSA, short for the Free Application for Federal Student Aid. You will need to provide personal and financial information to the Department of Education through this form. The form is free to fill out and can be completed online. You can access alternative student loans with bad credit in just the few hours it takes to fill out the FAFSA.