Loans, bad credit

Paying for college is a hurdle so many young Americans and their families now face. The hunt for funds can become all the more stressful if parents and students have bad credit or no credit history at all.

If you have bad credit, there are still several ways to get a student loan. In fact, your financial aid options may barely change, if at all. Scholarships, federal loans and grants, and borrowing from private lenders are all valid choices for getting a student loan.

Student Loan Options with Bad Credit

The federal government offers some loans to students regardless of their credit scores. Apply for federal financial aid by completing the FAFSA, the Free Application for Federal Student Aid. The results will tell you if you qualify for Stafford and Perkins loans, which do not require credit checks, as well as other federally funded student aid programs.

There is a “peer-to-peer” lending option. Students can turn to particular websites that link them with anonymous investors willing to offer loans. You may be able to work out better loan terms that suit your needs with a private investor. The people offering the loans are doing so to help out students in need. Be aware that this type of a loan can be risky, as it is not as secure as a loan from the government or a widely known bank.

Students can also look into their own contacts to ask for a loan. Friends and family members in better financial positions might be able to provide you with a loan from their own resources. The terms can be more flexible, and the lender will usually be willing to work with you because he or she knows you. Even in these cases, however, be sure to write up a contract detailing the agreement.

Am I Eligible for Privately Funded Student Loans?

Private lenders use your credit score to determine if you qualify for a loan. Your credit score will signify to lenders how likely you are to repay your loan: the higher your score, the more trustworthy you are as a borrower. That’s why you’ll likely receive better loan terms — lower interest rates and longer repayment schedules — if you have a better score.

Students often do not qualify for loans on their own because their credit histories are poor or nonexistent. The most common solution for this is to use a cosigner. A cosigner agrees to pay your loan if you fail to make timely or regular payments. This can be a parent, guardian or another adult you have a good relationship with, as long as the cosigner has a good credit score.

Interesting facts

• A guarantor is a person or agency that agrees to pay someone else’s debt should he or she default on a loan. In the case of student loans in the United States, the government guarantees the federal loans that students borrow. Federal student loans are a much lower risk when compared to other unsecured loans, partly because they are extended...
• A credit bureau or consumer reporting agency (United States), or credit reference agency (United Kingdom) is a company that collects information from various sources and provides consumer credit information on individual consumers for a variety of uses. It is an organization providing information on individuals' borrowing and bill-paying...