Bad Credit and Government Student Loans - The Truth

Students searching for funds for their college education often encounter painful truths about their credit history. In reality, most persons who seek loans to fund their college education have imperfect credit records. There is no cause for despair, however; both banks and other lending institutions often loan college money to people with poor credit ratings. In addition, the national government provides loans for students regardless of their credit score. Some things for students seeking college loans to consider include:

* First, direct your browser to the FAFSA website. Focus first on applying for federal grants. Even though it is possible that you do not meet income guidelines for federal grants,  you may be surprised. Moreover, it is easy to apply for these loans, and those who receive the grants will find it was well worth their time to fill out the application.

* Go to your university’s financial aid department. Fill out applications for available government loans, such as the Stafford and Perkins Loans. The federal government issues these to students without considering their credit history. During the time that you are enrolled in school, the government makes interest payments on the loan amount, which can be anywhere from $1000 to $4000 depending on the school year in which they are received.

* There really is no such thing as a government student loan for individuals with bad credit. Both Stafford and Perkins loans are issued to students based on demonstrated financial need, and a borrower’s credit history is not a factor. Organizations who claim that they are offering federal monies to student and require a credit check are probably not actually loaning government money.

* Other loans, which are not federally funded, may be designated as private or alternative loans. These loans, not offered by the government, require those who borrow these monies to pay unsubsidized interest fees during college enrollment. Even though students must pay interest, they may be able to borrow more money at lower interest rates through this avenue. In addition, students with poor credit ratings may seek an individual who has a good credit rating to co-sign for their loan.

* Students who do not have good credit might be eligible for a PLUS (Parent Loan for Undergraduate Students) loan. PLUS loans, which are funded by the U.S. government, permit parents to assist with paying for a student’s college degree. Because these loans are offered independently of financial need, parents are required to meet a certain minimum credit rating.  The students for whom these loans are financed must also be enrolled in an institution that is accredited and offers a 2- or 4-year degree program.

*Not only do government-backed loans offer lower interest rates and lending regardless of credit history, they are also much easier to consolidate after students graduate from college. Both private lenders and institutions that offer alternative funds offer less attractive terms and high interest rates; therefore, it is smarter to apply for loans offered by the federal government first.

Before agreeing to the terms of a loan in writing, make sure that you clearly understand all aspects of the loan and required repayment process. Because loans with exorbitant interest rates are impossible to repay within a reasonable period of time, always look for loans with reasonable terms and low interest rates. Start building a positive credit history by demonstrating sound financial sense and borrow tuition money wisely.