Parents take a certain amount of pride in seeing a son or daughter head off to begin their college careers. But there is also a degree of concern, especially financial, as the costs of a college education can be extremely high. That is why student loans, for parents with bad credit especially, are a vital component in tertiary education.
But what are the options open to parents that cannot afford to pay for tuition and living expenses? Aiding student financing is a grand idea, but can they qualify for the programs that matter? These are just two of the questions that come to mind. The good news, however, is that there are plenty of financing options out there.
Here, we look at three of them, from the Stafford Loan that is so popular, to the PLUS Loan that keeps the financial pressure off the student, to being a cosigner to ensure approval of the student loan is granted.
Consider a Stafford Loan
One of the most popular forms of financial aid amongst students is the Stafford Loan program, which provides funding to students who are from families unable to fully support their child in college. It is a hugely successful student loan, for parents with bad credit especially, as they may struggle to finance it themselves.
Stafford Loans are available at a lower interest rate than private loans. This means the overall costs are kept very low. Repayment is deferred until 6 months after graduation, ensuring the student has time to try to find a reliable source of income with which to repay the loan.
Many parents aiding student financing know they must allow the students to accept responsibility for the Stafford Loan, but frequently make the repayments themselves. However, there are strict limits relating to the sum of money borrowed, and the eligibility of the applicants. These student loans are only available to those in need of financial help.
Consider a PLUS Loan
When students find themselves ineligible for federal loans and private loans, it is possible to secure a PLUS loan on behalf of your own child. However, there are conditions to securing these student loans for parents, with bad credit a key one.
The PLUS Loan diverts financial responsibility away from the student, so the parent takes on the commitment completely. The funds can be used to cover both tuition fees and living expenses. Interest is charged on the loan at a lower rate than normal, between 7% and 8%, and is repaid over an agreed period of time in equal amounts.
However, aiding student financing in this way is dependent on the applicant having a good credit history. Recent bankruptcy rulings or loan defaults can mean the loan will not be granted. Also, if other forms of financial aid are secured, then the size of the PLUS student loan will be reduced.
Cosigning Student Loans
Finally, acting as a cosigner on a loan application can be a hugely effective way to secure a student loan. For parents with bad credit, there may be a problem, since their role as cosigner is only acceptable if they have good credit scores and a reliable source of income.
Still, if your own signature is not enough, then look to a family friend or relative that might more suitably fit the bill. Remember, a cosigner only promises to make monthly repayments when the borrower is unable to, effectively aiding student financing as a backup rather than by being the main payer.
Also, the student remains the key borrower, so if the student loan is defaulted upon – even if it is because the cosigner has failed to make the repayment – then it is the student that suffers the consequences. Their credit rating plummets, and their future loan applications become in doubt.