Have bad credit and want to help pay for college? See what’s available.
For parents with bad credit, paying for a child’s college education can cause extra anxiety. Naturally, you want to help defray your child’s cost of college and set him or her up for a successful future. But with a low credit score, you may be restricted in the amount you can borrow, and also have a limited pool of creditors who are willing to lend you money.
The good news: By taking a sensible approach to making college affordable, you and your child can investigate multiple funding opportunities to cover the cost of college. There are both federal and private student loans available to you and your child (as separate borrowers). Your child may qualify for tuition discounts, grants, scholarships, and/or work-study programs. And as parents, your credit score will only come into consideration for federal and private loans taken out in your name.
There are student loan servicers who are willing to work with parents with bad credit, but you’ll want to exercise caution and read all fine print of any student loan agreement before signing. (Actually, this is a good rule of thumb for all student loans, including those your child takes out in their own name.) Remember—the goal is to set everyone up for success, and that includes safeguarding your own finances, too.
Here are some options to help with paying for college if you have bad credit.
Minimize Your Student Loans Overall
The best way to avoid dealing with your bad credit score and student loans? Minimize the number of student loans you have to take out. Keep this mindset early in the college application process, and research colleges that will be particularly affordable for your child. (The Edmit college comparison tool can help take the guesswork out of this.) Speak to your child’s high school counselors about colleges that would be interested in enrolling students like your child—and which schools will go the extra mile with free money in the form of grants, scholarships, and tuition discounts. The fewer student loans you have to take out, the less of a concern your bad credit score will be.
Let’s say, however, that you’ve gotten a decent financial aid package from a few colleges, but still have to use student loans to make up the difference. In these cases, you have a few options.
Investigate Federal Student Loans (In Your Child’s Name)
When it comes to student loans, start with your student as the primary borrower, and begin your search with federal student loans. Federal student loans don’t take credit history or a credit score into consideration, and there are funding limits based on your student’s school year (e.g., sophomore year) and whether or not you’re claiming them as a dependent.
While you and your student don’t need to undergo a credit check for federal student loans, you do need to fill out the FAFSA (and, depending on your student’s potential college, the CSS Profile). The federal government uses the FAFSA to determine all need-based financial aid awards.
See if You Qualify for a PLUS Loan
PLUS Loans are available to parents of dependent undergraduate students to help pay for college, but they do involve a credit check. Those with an adverse credit history are not eligible, with “adverse” defined as “having a current delinquency of 90 or more days on any debt or a five-year lookback for certain derogatory events” such as bankruptcy, default, foreclosure, repossession, tax lien, and/or garnished wages.
There are exceptions, however, which the Department of Education regards as extenuating circumstances, such as a bankruptcy discharged more than five years prior to the credit check, a completed short sale during a foreclosure process, or an incorrectly filed tax lien, among other situations. Alternatively, parents with bad credit may be able to take out a PLUS Loan by undertaking PLUS Credit Counseling and working with an endorser who has good credit (e.g., a cosigner who agrees to repay the student loan if you default).
If you exhaust all options and are still denied a PLUS Loan, your child may be able to request more federal money through Direct Unsubsidized Loans, or can look into student loans from a private lender.
Carefully Consider Private Student Loans and Alternate Funding Strategies
If your federal student loan options still aren’t enough to cover the cost of college, your student can also look into private student loan servicers. Note that because most students don’t have a credit history, a cosigner with good credit may be required. According to Debt.org, some private lenders don’t make decisions strictly based on credit scores, so you may even be able to help as a cosigner.
Additionally—and especially if your student has a compelling personal story—you may find crowdfunding is worth a closer look. While there’s no guarantee your child will receive all the funding needed, crowdfunding can be a potential income source to defray the cost of attendance without having to deal with private loan applications and credit checks. For example, when Sarah Lawrence alum Thomas Speta had a drastic and last-minute change in his financial circumstances halfway through his sophomore year, he used crowdfunding to quickly cover his college expenses for the remainder of the semester. He was then able to work with the Sarah Lawrence financial aid office to put together a more advantageous package for his upperclassman years.
If you or your student do decide to go the private student loan route, know your options and compare lenders to make sure you’re getting the most advantageous terms for your circumstances. As a good place to start your research, NerdWallet has a handy comparison of six private student loan lenders. Your local credit union or community bank may also have decent offerings—and be willing to work with you despite bad credit.
Borrower Beware...Only Borrow What You Can Afford to Repay
With anything student loan related, know what you’re signing up for, including the specific terms of the loan, the interest rate, what you’ll have to pay back, and how long you’ll have to pay it back. Comb through the fine print for any fees and penalties. Use Edmit’s earnings comparison tool by major to see if anticipated future earnings will cover the estimated student loan payments. And if not? Have the tough conversation with your child about student loan debt, college affordability, and potential return on investment. Because the last thing you want as a parent with bad credit, is for your student’s college choice to create a debt situation where their credit gets affected poorly, too.