Even if you save money and win scholarships, you may need to borrow student loans to pay for your education. But without a credit history, you will likely have to prioritize student loans without a credit check.
Fortunately, there are college loans for students with no credit history. Here’s what you need to know:
There is no credit check when you apply for federal undergraduate student loans. Instead, what you borrow is based on your financial needs and how much it costs to attend your school.
The Free Federal Student Aid App (FAFSA) gives you federal student loans. You provide information on how much you earn and what you have saved. Your parents’ income and assets are also taken into account. Other considerations, such as whether you have a scholarship offer, are also considered.
Once you have completed the FAFSA, the information is sent to the schools of your choice. They set up a package of financial aid, which may include scholarships and subsidized loans or unsubsidized student loans. Federal Financial Aid.
To continue to enjoy Most Federal Student Loans without a credit check, you must complete the FAFSA annually. Otherwise, you will only get enough money in the form of loans for just one year of schooling.
Completing the FAFSA each year allows your school to reassess your ability to pay for college. If you have siblings attending college or your family’s financial situation has changed, you may be offered further financial assistance next year. Either way, you won’t need to go through a credit check to qualify.
While undergraduate student loans do not factor in credit, PLUS loans for graduate students and parents do. PLUS, loans do not require you to have good credit; they ask that you don’t have “bad or no credit.” If you do, however, you can try applying with an endorser.
Direct Subsidized Loans are only available to undergraduate students who have the greatest financial need during their college years.
Undergraduate and graduate students can apply for Direct Unsubsidized Loans, and there is no need to show financial hardship.
Unfortunately, there are situations where federal assistance is not enough to pay for your college-related expenses. If you’ve reached the borrowing limit for many federal student loans, you may need to turn to private student loans.
Private lenders are pickier about your credit situation. Since most private lenders have underwriting requirements, it cannot be easy to get college loans as a student without a credit history. So how do you get student loans without credit when private lenders care so much?
Many private student loan lenders don’t reveal credit score criteria (certain minimum credit criteria), but you or your co-signer will almost certainly need a credit score in the mid-600s to qualify. The higher your credit score, the more likely you will be accepted and earn reduced rates.
The answer: a co-signer. If you don’t have a credit history, a co-signer with good credit can save the day. Note that the co-signer becomes just as responsible for the loan as you are.
In addition, private loans may pay higher interest rates than federal loans. They also usually don’t have flexible repayment terms like a federal loan do. Make sure you fully understand the terms of your private loan before you or your co-signer sign on the dotted line.
However, just because you don’t have a credit history doesn’t imply you won’t be able to get money for school. The federal government and certain commercial lenders offer student loans with no credit checks.
A co-signer is a way to close your college funding gap by having a limited credit history. Most students enroll a parent. Family and friends are more likely to co-sign for you because they know you and your goals.
When looking for a co-signer, emphasize your ability to repay the loan later. Base your claims on the fact that you have fulfilled other obligations in the past. Showing that you are responsible and ready to pay off the debt can go a long way in helping you find a co-signer.
Even if the co-signers take responsibility for the loan, they might be willing to take the risk to help you. Agree to remove their name from the federal student loan refinancing when they finish school and have a job.
Work on building your credit throughout college so that you can meet your obligations without help. That way, your co-signer knows they won’t always be hooked.
Rather than getting student loans without credit, it is possible to turn to a revenue-sharing agreement. Some schools are testing these arrangements in which students pledge a percentage of their future income to investors willing to pay for their studies.
It’s not exactly a loan, however. You promise that a percentage of your income will go to a benefactor for a certain number of years. Under the terms of the revenue sharing agreement, you could end up paying less than if you borrowed the money otherwise, thanks to the interest saved over several years – especially if your alternative is a private student loan with a high-interest rate.
Ultimately, paying college students is all about pooling your resources. You can save money by using something like a 529 plan to reduce your student loan needs if you have the time. You can also work part-time during school or apply to be a resident advisor in exchange for free housing.
Student loans are only part of the puzzle when paying for your higher education. They are an essential part, but they are not the only part.
Go over your private student loan options and get creative. If you can avoid getting student loans or reduce what you borrow, your credit becomes less critical, and you can avoid some of the interest charges that come with loans.
A great way to reduce the number of student loans you need to borrow is to apply for grants and scholarships.
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Jeff Gitlen is a graduate of the Alfred Lerner College of Business and Economics at the University of Delaware. Gitlen has spent the past five years writing and researching on personal finance issues which include credit cards, student loans insurance, and other. His writing has been featured in top news publications among them are Bloomberg, CNBC, Forbes along with Market Watch.