Parents with bad credit have several ways to help their students pay for college: federal student loans, helping with the scholarship search, and filing special circumstance forms to boost financial aid awarded. And even better, you can boost your credit in as little as a few months to re-apply for either PLUS loans or private loans.
Here’s what you need to know about alternatives to student loans and credit requirements for each borrowing option:
Unsubsidized and Subsidized Federal Student Loans Don’t Have Credit Checks
Unsubsidized and subsidized federal student loans, the two main types of loans issued to students, don’t require credit checks. Your student just can’t have a student loan default they haven’t recovered from yet.
While you and your student don’t need to undergo a credit check for these federal student loans, you do need to fill out the FAFSA. The federal government uses the FAFSA to award financial aid.
Federal Parent PLUS Loans Have Easier Credit Requirements than Private Student Loans
PLUS Loans are available to parents of dependent undergraduate students to help pay for college, but they do involve a credit check. They are commonly used to make up the difference between the cost of attendance and other financial aid awarded. Those with an adverse credit history are not eligible. “Adverse” is 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. Parents who are approved for an exemption may be able to qualify after PLUS Loan Credit Counseling. Parents may also add an endorser, the Department of Education’s word for co-signer, who has better credit.
If you exhaust all options for being approved for a PLUS Loan or don’t dispute the credit denial, your student may qualify for additional money through Direct Unsubsidized Loans.
Private Student Loans Will Require Boosting Credit Scores
There are private student loan lenders that have lower credit standards than others, but they are still likely to have higher standards than for PLUS loans. Thus, if you want a private student loan for future years, the best way to do so is to take a few simple steps to improve your credit. The first step is to pull your credit reports for the three major credit bureaus at annualcreditreport.com. Then, dispute any inaccuracies. Next, pay down your credit cards. A big chunk of your credit score is based on how much of your credit limit you are using. So paying down your credit cards, even if you’ve previously missed payments, can boost your credit score fast.
Alternatives to Student Loans: Free Money and Student Employment
There’s a silver lining to everything. In this case, it’s a reason to repair your credit and also a reminder to minimize borrowing . Use the Edmit college search tool to find colleges that may offer your student more scholarships and university grants. You’ll also be able to estimate federal financial aid. If your student has already picked a school, consider filing a special circumstances form with the college financial aid office if your income has recently dropped or you’ve had a recent economic hardship of any kind. The school may award more financial aid because of it.
Finally, work study or work in general is a good gap filler. The best part? Less debt, and work experience that can help your student get a job post graduation. The career boost is largest when jobs are a result of a search from the career services office and relates to their major.
The 5 Most Important Takeaways
- Unsubsidized and subsidized student loans don’t require credit checks.
- Federal PLUS loans have easier approval standards than private student loans.
- Dependent students can get approved for a higher amount of unsubsidized loans if you are turned down for Federal PLUS loans.
- Unsubsidized student loans have a lower interest than PLUS loans.
- You can raise your credit score to be approved in future years with a few simple steps. Pull your free credit reports at annualcreditreport.com.