How to Get a Student Loan with Bad Credit
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Education is paramount. Unfortunately, a quality education is also not free. Going to a reputable college can cost several thousand dollars all the way into the mid six figures. That is no small amount to consider and it seems to be a necessity because it is our education — and future — that is on the line. Having a bad credit score can hamper the process. But we are a credit repair company that can help you get back on the right track with your credit.
Generally speaking, students who are going to college obtain their tuition money through grants, scholarships, student aid, and federal funding. But there are those students who aren’t coming straight out of high school, looking to go back to further their education or make a career change.
And if you have a bad credit score, you could be left wondering what to do when it comes to getting the funding you need to continue your education or make that career change. Here is what you need to know.
You Can Get a Student Loan with Bad Credit
If you thought that having bad credit would keep you from your educational pursuits, think again. You absolutely can get a student loan with bad credit; there are just steps that need to be taken and things that you need to know before pursuing a loan.
The first is that you likely cannot get a private loan with bad credit. Lenders will give out loans for just about everything there is: a car, a home, and even your education. But they are businesses and they are trying to take the appropriate risks in their borrowers to ensure that they will get their loans paid back.
So if you can’t go through a private lender to get the funds that you need for your educational career, what other options are out there? This is where federal loans come into play.
You Should Always Apply for a Federal Loan First
No matter what, you should always try federal loans first. This is for a couple of reasons. The first is that federal loans will carry lower interest rates than most of the private loan options out there. This is because these loans are backed by the federal government.
Not only that, federal loans have the option of income-driven repayment plans. This means that your payments are capped at a certain portion of your income and that it will extend the length of your term. This makes paying back your federal loan much more manageable than with a private lender who may not be flexible on loan terms.
Even better is that there are some federal student loans that may be incorporated into forgiveness programs. This means that if you meet the standards of these forgiveness programs, your loans may be excused and you won’t have to pay them back. It can be important to know these things before going into a meeting with your lender.
The process for applying for these student loans is what is known as FAFSA: the Free Application for Federal Student Aid. FAFSA could also qualify you for free aid if you accept before borrowing the money. This can be work studies, scholarships, and grants.
Shopping for a Private Student Loan
Should you find yourself needing a private student loan, either because your federal loan didn’t cover the entirety of your expenses or for another reason, all hope is not lost if you have bad credit. There are things to keep in mind and steps to take into consideration.
The first is to find a co-signer who has good credit. This can be a dicey situation even if that person is a family member. For teenagers and those in their early 20s, this can be a parent. A co-signer is an assurance to the lender that you will make your payments.
The downside to a co-signer is that they are responsible for your debt if you cannot repay it. So not only will your credit score be negatively impacted but it will hurt their credit history as well. So if you do have a co-signer, be aware of that risk and the impact that it can have on your relationship if you fall behind on payments.
If a co-signer is not a possibility, there are some private lenders out there for student loans that don’t factor in your credit score. What is considered is your future income potential: the higher your potential, the more likely you are to get competitive rates to finance your education.
Should you go the route of a private loan, it is important to compare the features of those loans. In addition to looking for the best interest rates possible, look for other things such as whether or not the lender will postpone payments in the event that you lose your job or can’t afford them and for how long they may allow this.
Find out the fees — prepayment, late, or otherwise — as well as how easy it is to engage with customer service for that lender. Communication is key when it comes to your loan and if there is a chance that you may fall behind, it is possible that you can get out ahead of things by contacting your lender first.
The last option is that you take on a student loan with a high rate while you build up your credit. Make interest-only payments on that loan until you can build your score up and then try to refinance down the line. Keep in mind that you need a history of on-time payments, a quality income, and a credit score of 690 or higher in order to achieve this.
Having a bad credit score is not the end of the world. It can make getting a proper student loan a bit more difficult but it doesn’t make it impossible. There are avenues for procuring a student loan that can save you on interest rates in the long run; it is just a matter of finding the right loan for you and being responsible when it comes to making your payments each month.
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