Access credit to pay for college expenses is difficult for college students who may have little or no credit, and even worse, might have bad credit. Luckily, there are a few ways that borrowers can access the capital they need regardless of their credit score. The most readily available source of inexpensive money comes from the US Federal government.
Direct Loans Student Loans
Direct Loans is the name of the organization that issues student loans directly to borrowers from funds set aside by the US Department of Education. Many of its loans do not require a credit check, and provide low rates to the borrower regardless of their credit history, their current income, or their past finances.
Stafford loans – The most common type of a college student loan from Direct Loans is the Stafford loan, which is made direct to the student to cover costs related to college including books, transportation, housing, food, tuition, and other fees and expenses. Stafford loans made direct to students are not dependent on having a good credit score, and there is no credit pull. Instead, the Department of Education has the law on its side; borrowers cannot discharge these debts in bankruptcy, thus it does not have to fear losing money when giving loans to borrowers.
There are two types of Stafford loans:
Subsidized student loans – Subsidized student loans are those which are given to college students without interest while they remain in school. The US Congress and the Federal Government allocate funds to cover the interest payments on the debt as long as the student maintains a status of “half-time” of 6 hours per semester. These are awarded on the basis of financial need, and only a minority of students receive these loans. However, a majority of the students who do receive them are independent borrowers and independent students, which presents an excellent opportunity to access credit even as an individual borrower.
Unsubsidized student loans – Unsubsidized student loans are those which are issued to college students to cover costs related to their college costs. Awarded also on a need-basis, most students will find that they can access at least some of the funds they need in the form of unsubsidized borrowing. Interest does accumulate on these loans, and all loans made through Direct Loans now have a fixed rate of interest, which is set by Congress.
Stafford loans from Direct Loans are an excellent choice for funding college expenses. Students may borrow up to $5,500 for their first full academic year (freshman year), $6,500 for their second year, and $7,500 for their third year, and for each and every year past three years. In total, a student may borrow up to $31,000 for their college education from Stafford Direct Loans to complete a full four academic years of study. For many students at state schools and community colleges, this is more than enough to pay for most costs directly-related to their education including tuition, books, fees and expenses.
Private lenders aren’t as open to lending to students with bad credit as the federal government is, but that doesn’t mean that you’re entirely out of luck. Much like the Direct Loans program, Wells Fargo, Sallie Mae, and the myriad of other student loan companies are legally entitled to their money regardless of your ability to pay. Student loans remain one of the few debts that cannot be discharged in bankruptcy.
However, private borrowers do have an incentive to be tight with their pocketbooks. Even if they have the capacity to make a loan to college students with bad credit, they’d much prefer to lend to borrowers with better credit. Here are a few tips for getting a private student loan with bad credit:
Boost income – The best way to get any kind of loan is to show that you have the ability to pay it back. If you have to cut back your hours of schooling to work more hours for pay, then by all means, do it! A higher income will help reduce some of the discount that lenders apply to borrowers with bad credit history, especially those in college.
Get a consignor – Private lenders are likely to require that borrowers have a consignor sign onto the loan to protect themselves. This consignor should be someone you know who has the credit history and income to be able to pay the loan back if you cannot. Your family is a great place to start, especially grandparents, who usually have better debt-to-income ratios and a long credit history of making payments on time. Alternatively, a spouse is an excellent consignor, since your finances are already tied together.
Work on your credit – Improving your credit score is as easy as getting a free credit score from annualcreditreport.com, a service of the Federal Government, and looking through the credit report to find errors or misreported information. Your bad credit might not be your fault! In fact, as many as one-third of Americans have inaccurate data on their credit reports.