As a college-aged adult you know that most types of loans, like personal loans, mortgage loans and car loans for example, take your credit score into account before you can receive approval. This isn’t always true for student loans, however, as there are several loans you can qualify for as a borrower, even if you happen to have a low credit score – or no credit history at all.
This is great news for borrowers, especially as changes to student loans occur on a regular basis due to shifting policies from Trump administration. So, if you’re someone who wants to go to school, but your credit score is either scary or nonexistent, here are some options that will offer you some hope.
One of the greatest things about federal student loans, aside from their competitive interest rates, is that you can get approved for these kinds of loans without too much concern about your credit score. This means that even if you have bad credit, or you’re still working on building a credit history, your best option is to apply for a federal student loan to pay your college education.
Yet when it comes to federal student loans, there are some other important things to consider.
When you apply for a federal student loan, the Department of Education will ask you to fill out the Free Application for Federal Student Aid, also known as the FAFSA. Once you’ve completed the FAFSA, the Education Department will use the information you provided to determine if you’re eligible for two categories of loans offered by the federal government: need-based and non-need-based loans.
Need-based loans are loans that are given to borrowers with a strong financial need. These loans include Federal Perkins Loans and Federal Direct Subsidized Loans.
Federal Perkins Loans are low-interest loans designed for undergraduate and graduate students that come with a five-percent interest rate. To be eligible for this type of loan, you’ll need to be enrolled full-time or part-time at a school that participates in the Federal Perkins Loan Program and meet other eligibility requirements before approval.
Federal Direct Subsidized Loans are only available to undergraduate students, and like Federal Perkins Loans, are awarded to applicants based on financial need. If you’re able to secure a Federal Direct Subsidized Student Loan, the Department of Education will pay the interest on your loan as long as you remain eligible. Then once your education is completed or you leave school, you will be responsible for paying back the loan after your grace period has ended, including any interest.
Neither of these loans will take your credit into account when you’re applying – and they may be ideal for applicants who want to attend college but have little or no income and no financial assistance from family members.
If you’re someone who doesn’t qualify for a need-based student loan, you may still be eligible for two more non-need-based loans the Education Department has available. These include Federal Direct Unsubsidized Loans and Federal Parent PLUS Loans.
Federal Direct Unsubsidized Loans are loans given to undergraduate and graduate students who don’t meet the requirements for need-based loans. When you apply through FAFSA, your school will determine which type of loan you’re eligible for and base the amount you can borrow on the cost of attendance and other school-related costs.
One thing to note: This type of loan requires you to pay interest during all periods of the loan – though you can defer that interest until after you’ve left college.
Federal Parent PLUS Loans, on the other hand, are only available to graduate students or the parents of students who are currently attending college. And while the above loans don’t require credit checks for approval, Federal Direct PLUS Loans do involve credit checks beforehand. But as most borrowers have discovered, if your parents have good credit and they’re co-signers on the loan, there’s a good chance you’ll get approved even if your credit isn’t in the best shape.
Private student loans are another option if you need money for college – but only if you’re applying for the loan with a creditworthy co-signer or you have a credit score in the 6-700 range.
This is why so many borrowers choose federal loans over private loans to pay for school. Not only do federal loans typically offer lower interest rates than private student loans, they also offer additional benefits and protections that private lenders can’t compete with.
Yet, whether you choose to go to a private lender or get help from the federal government, you usually have the option of consolidating your loans into a more favorable repayment plan. In the end, it’s about getting the right type of student loan for you and your credit score, so you can focus on what matters most: getting your education.