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Many parents wonder how to pay for their child’s college education, especially since the cost of college education seems to be increasing every year. However, borrowing money for your child’s schooling can be more complicated if you have bad credit.
Luckily, there are ways to find financing even if you have bad credit — here’s what you need to know.
Start with Parent PLUS loans
If you need student loans for your child, one of the first places to look should be Parents PLUS Loans. These federal student loans allow you to borrow money for your child who is attending college. It covers the full cost of attending minus any other financial support the student receives such as grants and scholarships.
For many — particularly those with poor credit — government student loans may be a better option than private debt. They’re usually easier to qualify for and everyone gets the same interest rates, regardless of your credit. They also offer greater protections, such as B. More flexible repayment options and forgiveness programs.
To qualify for a Parental Loan PLUS, you must be the biological or adoptive parent of a dependent student who is at least partially enrolled in a school. In some cases, a step-parent may also qualify.
While most types of government student loans don’t require a credit check, a Parents PLUS loan does—but there’s more wiggle room than you might think. To get a PLUS loan, you must not have “negative credit,” which means you must not have any of the following on your credit report:
- delinquent account balances totaling more than $2,085 in the past two years; or the same amount in the last two years in collections or discharged
- A tax lien, foreclosure, or foreclosure within the last five years
- Wage garnishment in the last five years
- Write off federal student debt over the past five years
- Accounts that have defaulted in the last five years
If you don’t do much credit to your name, or your score is low for some other reason, you’re likely to get admitted with no problems. There is no minimum credit requirement, and everyone who qualifies for a Parents PLUS Loan earns the same interest rate.
If you’ve experienced credit problems like those listed above, all is not lost. You may still qualify for Parents PLUS Loans, but you must take additional steps.
Consider adding an endorser
If you cannot qualify on your own, you can add an endorser to your application. An endorser, similar to a co-signer, is someone who has no negative credit history and agrees to repay the loan if the parent cannot. The endorser cannot be the child benefiting from the loan, but it can be another family member or close friend.
Becoming an endorser comes with risks: the endorser is legally responsible for repaying the loan if the main borrower does not, and any missed payments or negative notes also appear on the endorser’s credit. However, if you cannot individually qualify for a Parents PLUS loan, adding a trusted supporter can help.
If you’re rejected, appeal
If you meet all other credit requirements and can show that your adverse credit history is due to extenuating circumstances, you can appeal to the US Department of Education. While approval is not guaranteed, appealing can increase your chances of qualifying.
For example, if you were denied a PLUS Loan because you previously had a collection account, you can win an appeal if you can show that the account has since been paid off, or you have consolidated the debt and have a record of recent payments. For more examples of how to appeal a negative credit history, visit the Federal Student Aid website.
If you end up receiving an endorser or successfully appealing, you must complete a 30-minute online credit counseling session before the funds are disbursed.
Next, look at private student loans
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 such as 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 another adult.
For private lenders, strong credit and history are an important part of eligibility. If you apply with bad credit, you may not qualify — or if you do, you likely face higher interest rates than government student loans. If you do not have enough credit to qualify, you can add a co-signer with good credit to your application.
When purchasing personal student loans, it’s a good idea to compare lenders and their requirements. Many lenders allow you to pre-qualify before completing a full application, so you can see if you qualify for a loan before committing to anything. Because there are no universal standards among private lenders, you may need to take this step with multiple companies to find a loan that you qualify for.
4 Alternatives to Student Loans for Parents with Bad Credit
Bad credit makes it harder to borrow money. If you’re trying to get loans for your child’s education and are encountering problems, there are a few things you can do.
1. Search for scholarships and grants
Grants and scholarships—free money that doesn’t have to be repaid—should be used before you take out any credit. The more free money your child gets, the less money they have to borrow (and pay back).
There are tons of grants and scholarship databases housing awards in the billions. Look for different 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 opportunities to borrow for college than their parents—and many student loan products are designed for borrowers with little or no credit. That means it’s probably 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 4.99% for the 2022-23 school year. These loans do not require a credit check, are repaid after the student leaves school, and have flexible repayment schedules that can be based on the student’s post-college income.
If you think you will have trouble qualifying for a parental loan, help your child research the options available to them. There will likely be more credit opportunities at lower interest rates than a parent with bad credit could find.
3. Work to improve your credit score
If you are determined to borrow parent student loans, increase your credit as much as possible before applying. You can do things like:
- Check your credit report for errors. Check your credit report and double check it for accuracy. If you find errors that hurt your score, you can file a complaint with the relevant credit reporting agency. The Bureau will examine the claim to determine if there is an error and if so the offending mark will be removed.
- Pay off old debts. If you’re behind on payments, consider paying off any old debt you can. Whether it’s an overdue hospital bill or a credit card, this is one way to improve your score. You may find that lenders are willing to work with you on a new payment plan if it means getting some money back.
- Lower your credit utilization. Your credit utilization — also known as your debt-to-credit ratio — accounts for a significant portion of your credit score. In short, it measures how much of your total credit limit you spend each month. If possible, keep your credit utilization below 30% to help your credit score.
4. Consider other ways to help
If you’re having trouble paying for your child’s school, try other ways to help. For example, you can reduce tuition costs by allowing your child to stay at home during school hours. If you think your child should be entitled to more financial assistance, you can help them file an appeal for more money.
As a last resort, if you have exhausted your other funding options, ask family or close friends to contribute to the college’s expenses. While this isn’t an option for everyone, if you’re lucky enough to have a family of means, lean on your network.
Before money changes hands, create a written agreement (and repayment plan, if applicable) that works for everyone. This can help everyone understand expectations and avoid misunderstandings later.
Student loans are an option — but not your only choice
While loans are helpful for many students, other funding opportunities should be exhausted first. Parents can help their children get as much free money as possible by submitting the Free Federal Student Aid Application (FAFSA) as early as possible and applying for individual grants and scholarships.
When this funding runs out, consider federal student loans to help cover additional costs. If you still need more money after that, consider private student loans as a last option.
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