How To Get Student Loans For Parents With Bad Credit – Low Cost Advisor
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Plenty of parents wonder how they’ll pay for their child’s college education, especially as the cost of higher education seems to increase each year. However, borrowing for your child’s schooling can be more complicated if you have poor credit.
Luckily, there are ways to find funding even if you have bad credit—here’s what you should know.
Start with Parent PLUS Loans
If you need to borrow student loans for your child, parent PLUS loans should be one of the first places you look. These federal student loans allow you to borrow money on behalf of your college-attending child. It covers the full cost of attendance minus any other financial aid the student gets, like grants and scholarships.
For many—especially those with poor credit—federal student loans can be a better option than private debt. They are typically easier to qualify for and everyone receives the same interest rates, no matter your credit. They also come with greater protections, such as more flexible repayment options and forgiveness programs.
To qualify for a parent PLUS loan, you must be the biological or adoptive parent of a dependent undergraduate student who is enrolled at least part-time in school. In some cases, a step-parent may also qualify.
While most types of federal student loans don’t require a credit check, a parent PLUS loan does—but there’s more leeway than you might think. To receive a PLUS loan, you can’t have “adverse credit,” meaning you can’t have the following on your credit report:
- Delinquent account balances totaling more than $2,085 in the last two years; or the same amount in collections or discharged in the past two years
- A tax lien, foreclosure or repossession in the last five years
- Wage garnishment in the last five years
- Write-off of federal student debt in the last five years
- Accounts that have gone into default in the last five years
If you don’t have much credit to your name or your score is low for other reasons, chances are you’ll be approved with ease. There’s no minimum credit score requirement, and everyone who qualifies for a parent PLUS loan receives the same interest rate.
If you have experienced credit concerns like those listed above, all is not lost. You might still qualify for parent PLUS loans, but you’ll need to take extra steps.
Consider Adding an Endorser
If you can’t qualify on your own, you can add an endorser to your application. An endorser, similar to a co-signer, is someone who doesn’t have an adverse credit history and agrees to repay the loan if the parent can’t. The endorser can’t be the child who is benefitting from the loan, but it can be another family member or close friend.
Becoming an endorser does come with risks: The endorser is legally responsible for repaying the loan if the primary borrower doesn’t, and any missed payments or negative marks will also appear on the endorser’s credit. However, if you can’t qualify for a parent PLUS loan individually, adding a trustworthy endorser could help.
If You’re Denied, Submit an Appeal
If you meet all other loan requirements and can prove that your adverse credit history is due to extenuating circumstances, you can submit an appeal to the U.S. Department of Education. While approval isn’t guaranteed, an appeal might increase your chances of qualifying.
For example, if you were denied a PLUS loan because you previously had an account in collections, you might win an appeal if you can prove the account has since been paid off or you’ve consolidated the debt and have a record of recent on-time payments. See more examples of how you might appeal an adverse credit history on the Federal Student Aid site.
If you end up getting an endorser or successfully submitting an appeal, you will need to complete a 30-minute credit counseling session online before the funds are disbursed.
Look to Private Student Loans Next
If you don’t qualify for parent PLUS loans, consider private student loans for parents with bad credit. Private student loans are administered by institutions like banks, credit unions and online lenders. Some private lenders offer parent-specific student loans, but in other cases, private student loans can be taken out by the student and co-signed by a parent or other adult.
For private lenders, a strong credit score and history are a major part of eligibility. If you apply with poor credit, you may not qualify—or if you do, you’ll likely face higher interest rates than you would with federal student loans. If you don’t have enough credit to qualify, you can add a co-signer with good credit to your application.
When shopping for private student loans, it’s a good idea to compare lenders and their requirements. Many lenders allow you to prequalify before completing a full application, so you can see if you might be eligible for a loan before you commit to anything. Since there are no universal standards among private lenders, you might need to take this step with several companies to find a loan you’re eligible for.
4 Alternatives to Student Loans for Parents With Bad Credit
Having bad credit makes it harder to borrow money. If you’re trying to secure loans for your child’s education and are running into problems, there are some things you can do.
1. Look to Grants and Scholarships
Grants and scholarships—free money that doesn’t need to be paid back—should be used before taking out any type of loan. The more free money your child gets, the less money they’ll need to borrow (and pay back).
There are loads of scholarship and grant databases that house billions of dollars of awards. Search for various types of awards based on the student’s race, gender, socioeconomic background, field of study and even general interests.
2. Help Your Child Apply for Loans
Students generally have more options to borrow for college than their parents do—and many lending products for students are designed for borrowers with little to no credit. That means it’s likely easier and cheaper for your child to borrow money for their own education.
For example, most undergraduate students are eligible for subsidized and unsubsidized federal student loans, which have a fixed interest rate of 3.73% for the 2021-22 school year. These loans require no credit checks, don’t enter repayment until after the student leaves school and have flexible repayment plans that can be based on the student’s post-college income.
If you think you’ll have trouble qualifying for a parent student loan, help your child research the options available to them. There will likely be more lending opportunities to choose from at lower rates than a parent with poor credit might find.
3. Work to Boost Your Credit Score
If you’re determined to borrow parent student loans, increase your credit as much as possible before applying. You can do things like:
- Review your credit report for errors. Review your credit report and check it for accuracy. If you find mistakes that are hurting your score, you can submit a dispute with the credit bureau involved. The bureau will investigate the claim to determine if it’s an error, and if it is, the offending mark will be removed.
- Pay off old debt. If you’re behind on payments, consider paying off any old debt you can. Whether it’s an overdue hospital bill or credit card, this is one way to get your score to rebound. You might find that lenders are willing to work with you on a new payment plan if it means they get some money back.
- Lower your credit utilization. Your credit utilization—also known as your debt-to-credit ratio—makes up a significant portion of your credit score. In short, it measures how much of your total credit limit you are spending each month. If possible, keep your credit utilization below 30% to help your credit.
4. Consider Other Ways to Help
If you’re struggling to find ways to pay for your child’s school, see if you can help in other ways. For example, you can reduce college costs by allowing your child to live at home while they’re in school. If you think your child should qualify for more financial aid, you can help them submit an appeal for more money.
If you’ve exhausted your other funding options, consider asking family or close friends to contribute to the costs of college as a last resort. While this isn’t an option for everyone, lean on your network if you’re lucky enough to have family with means.
Before any money changes hands, set up a written agreement (and repayment plan, if necessary) that works for everyone. This can help ensure everyone understands the expectations and reduce misunderstandings later.
Student Loans Are One Option—But Not Your Only Choice
While loans are helpful for many students, other funding opportunities should be maxed out first. Parents can help their children get all the free money they can by submitting the Free Application for Federal Student Aid (FAFSA) as early as possible and applying for individual grants and scholarships.
Once that funding has been exhausted, consider federal student loans to cover additional costs. If you still need more money after that, consider private student loans as a final option.
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