Ask the parents of college students about tuition costs and you can expect a slow roll of the eyes. College costs have increased at a rate of 7% for several decades. Since 1982, family incomes have risen by nearly 120%. However, College tuition has outpaced inflation and family incomes by soaring 500%. College tuition that cost $10, 000 in 1985 would exceed the inflation rate by two and half times.
It is no wonder the both parents and college students seek alternative ways to what has become a mandatory career investment. Student loans represent a majority of the funding families receive to pay for a four-year degree. But not all students and families are blessed with perfect credit. What about student loans for people with bad credit? At LendEDU, we get plenty of individuals looking for student loans with bad credit. You should know that there are student loan options available for people with bad credit.
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You can get a student loan with bad credit. You just need to know where to look. We've partnered with PrivateStudentLoans.com to help you compare options.
What about Student Loans for Bad Credit?
Finding private student loans for bad credit is about as difficult as finding water in the
Mojave Desert . How do college students rack up bad credit, since most college students have never used credit cards or taken out loans? The new credit paradigm has changed, as many high school students apply for credit cards and subsequently rack up charges that they cannot afford. Combine that with a growing number of older students that work full time jobs, and the student loans for bad credit pool expands significantly. Since college students have difficulty finding privately financed student loans, the best option for taking out student loans for bad credit lies with
United States government.
Federal Student Loans are the Way to Go
The federal government does not check histories of student loan applicants. The ease of receiving approval for federally funded student loans has prompted a rapid increase in student loan applications.
College Students have access to both subsidized and unsubsidized
Stafford student loan to help defray or eliminate tuition expenses.
Stafford loans operate n a financial need basis, with different loans matching unique college student financing needs. Loans such as
Stafford and Perkins offer college student an affordable way to pay off tuition debt. Finite federal government resources means many applicants receive little or no help, since they fall beyond the income restrictions mandated by the federal government.
Here are the federal student loan options for bad credit applicants:
- Stafford
- Perkins
- GradPLUS
- ParentPLUS
Complete the FAFSA form online to apply for the federal student loans for bad credit. A FAFSA form gathers student financial data and the form has become mandatory for applying for financial aid through most four-year colleges and universities. Students do not have to pay an application fee, as they do for private loans. By completing a FAFSA, college students choose among different loans, grants, and scholarships, even student loans for bad credit.
Stafford Loans
Stafford student loans fall under the legal purview of the William D. Ford Direct Student Loan Program. Subsidized
Stafford loans enable need-based college students to receive subsidized interest rate payments, which means the loan does not increase in value while the student is in school.
Unsubsidized
Stafford loans accrue interest during the period when college students enroll in four-year institutions. The federal government caps
Stafford student loan amounts at , 500 per year, which translates into , 250 per academic semester.
Are Private Student Loans a Pipe Dream?
In 2014, more than 14% of all student loan borrowers defaulted on student loans. This is an amazing number, because of the dire consequences that derive from walking away from student loan payments.
The high student loan default rate and financial instruments that provide better returns represent the primary reasons why private lenders eschew approving student loans, especially student loans for bad credit. Yet, student loans for bad credit have not completely dried up and students have ways to bolster their student loan applications.
A Cosigner Improves the Chances of Approval for Student Loans for Bad Credit
Just as with thin credit for people that have not established a credit history, a cosigner can turn the student loan for bad credit application into an approved student loan application.
A student borrower must recruit a cosigner that has established a strong credit history. Family members that possess strong credit histories are often the best place to start for recruiting a cosigner. Enlisting the help of a family member cosigner holds the student loan borrower accountable for adhering to the repayment schedule. Private lenders typically prefer a cosigner for college students that cannot demonstrate credit histories. Some private lenders target college student loans, even student loans for bad credit. You can expect to pay exorbitant interest rates, which often comprise the reason for student loan defaults.
An Overview of Credit Scores
Lenders use credit scores to determine the credit worthiness of loan and credit card applicants. Low credit scores act as the proverbial red flag and pretty much end the student loans for bad credit hunt. Any lender that offers student loans for bad credit typically adds cost prohibitive fees and charges, as well as bumps interest rates to unaffordable levels. Credit score range from 300 to 850, depending on the three primary credit score agencies. Lenders vary on the definition of student loans for bad credit, but the following credit score breakdown provides students and parents with a general idea on what constitutes bad credit.
700-850: Excellent
680-699: Good
620-679: Average
580-619: Low
500-579: Poor
350-499: Bad
Remember that many lenders do not offer loans to anyone applicant that possesses a credit score below 620. The designation of a bad credit rating does not last forever. By law, credit reporting agencies must remove negative citations after seven years have passed since the negative credit incident, such as late credit car payments. Diligence and discipline play important roles in determining how long credit risks remain in the bad credit category.
How Bad Credit Happens
Acquiring a credit score under 619 requires several factors to occur. Equifax, Experian, and TransUnion consider longevity and credit diversity, before the institutions issue credit scores for consumers. The longevity and diversity criteria used to calculate credit scores go against most college students. How many 18-year old freshmen do you know that have established credit histories of more than two years and possess a diverse portfolio of credit sources? Credit diversity includes revolving credit such as Visa, installment credit that covers long-term loans, and open credit that requires full payment each month. College students rarely have recorded one, much less all three types of credit.
Consolidation and Deferment
Lenders started consolidation programs to help college students manage multiple loan payments every month. The student loan management strategy has nothing to do with student loans for bad credit, as it does not influence credit scores. Yet, consolidation enhances the financial status of college students that fall behind paying several student loans. Some lenders consolidate student loans under a lower interest for students that have demonstrated the capability of making timely student loan payments.
Deferment helps students that cannot pay off student loans. The policy typically comes into play during economic downturns, such as the housing collapse that unfolded towards the end of 2008. Students that receive deferments delay student loan payments for a time specified by the lending institution. The problem with deferment is student loans for bad credit still accumulate interest that makes student loans much more costly to settle.
Interesting facts
Additional information
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