For Student LoansA bad credit score is an irritating monkey to have on your back, and having no credit history at all can be just as bad. Fortunately, neither of the two will necessarily get in the way of borrowing money to finance your education.
I know this information might sound like a con, and you're probably waiting for the "all you have to do is give me all your bank details" punch line, but it's true.
If you're an undergraduate, you can get your hands on a federal student loan, even if your score resembles the average temperatures in the Antarctic. If you're a parent or graduate student, you can still borrow to support your education or your child’s without an award-winning credit score.
A Word of WarningA federal loan may not cover all your college expenses, and the gap may lead you to think you'll just borrow from a private lender as well. When you turn to the private side, though, that low score will start to make a mess of things, landing you with a high-interest rate. If you've got a really bad financial history, you can pretty much forget about getting a private student loan. Your only option will be to get a co-signer with excellent credit, if possible, to jump that hurdle.
Whatever you do, stay away from personal loans, and don't even think of using a credit card to cover your college costs. Either of these options is sure to have you paying sky-high interest rates, and neither of them will offer the same features (such as deferred payments while in college) that private student loans typically do.
Minimize what you borrow. Accumulated interest has a way of creeping up on you over time, and you don't want to be stuck with a massive bill for several years. Make a realistic budget and only get what you need.
Now let's look at the options in more detail.
Undergraduate Federal LoansEven if you've been using your credit for target practice, you can obtain a federal student loan for undergraduate study. A credit check is not required. You have two possibilities in this category.
Direct Subsidized - This one is a fixed-rate, subsidized loan, in which the government pays any interest accrued during deferment or while you're in college.
Direct Unsubsidized - This is also a fixed-rate loan, but the difference is that you'll pay any interest that accrues during a deferment or your time in college. However, all students qualify, and you can typically borrow a larger amount than with subsidized borrowing.
Parent and Graduate Federal LoansAny parent or graduate student can get these, and there's still no required credit check. Parent and graduate federal loans are broken down into two categories:
Direct Unsubsidized - It's unsubsidized, and you pay the interest. The interest rates are quite reasonable, though, and the amount you can borrow is substantially higher than undergraduate loans.
Direct PLUS - Now we're hitting pay dirt. It's an unsubsidized loan for Graduates who have maxed out their direct unsubsidized borrowing or to parents who intend to use the money to cover their child's tuition. This feature is awesome, but it comes at a cost: Direct PLUS borrowing has the highest interest rates of all the federal student loans and carry high fees as well. If you can get a co-signer with excellent credit, looking into a private student loan might be a better option. If not, Direct PLUS is your best bet, and you’ll just have to write off the higher fees as an early lesson in the price of bad credit.
Private BorrowingNow, about those private bad credit student loans. For one thing, they're not particularly easy to find. Still, you might have some good reasons for needing one. Your federal financing might not cover all of your college expenses. This situation can be a tough one, and the protections you'll typically find with a federal loan (income-based payments and even forgiveness) don't come with private borrowing. Regardless, you may have no other choice. You have two options for private borrowing.
With a co-signer - This is the best way to qualify if your financial history is scaring lenders away. The co-signer will need good, if not excellent credit. Your co-signer will also be stuck with all responsibility if you default. However, certain private lenders will allow you to release the co-signer from responsibility once you've made consistently on-time payments for a given period. It's good to keep this perk in mind, as it may make your request more appealing to a potential co-signer.
Without a co-signer - Why don't you just sign up to buy a Lamborghini while you're at it? Joking aside, it's probably not going to happen. You need a decent score to qualify for private borrowing on your own. Don't be disheartened, though. The facts aren't always in our favor, but knowing them allows you to make better decisions.
Final WordDon’t just assume that you have a bad credit score, find out! You should look at your Free Annual Credit Report and get the facts. When you know where you stand, you should submit a free application for federal student aid and go from there. It's also a good time to start working on improving your credit. If you make payments promptly, purchasing a car, renting an apartment, or even just getting your cell phone plan will significantly improve your score over time.
The better your credit, the better your options. Your future starts now.