Parents are proud to see a son or daughter 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’s why student loans, especially for parents with bad credit, are a vital component of college education.
But what are the options open to parents who can’t afford tuition and living expenses? Helping students finance themselves is a great idea, but can they qualify for the programs that matter? These are just two of the questions that come to mind. However, the good news is that there are many financing options.
Here, we look at three of them, from the Stafford Loan that is so popular, to the PLUS Loan that avoids student financial pressure, to co-signing to ensure student loan approval is granted.
Consider a Stafford Loan
One of the most popular forms of financial aid among students is the Stafford Loan program, which provides financing to students who come from families that cannot fully support their children in college. It is a very successful student loan, especially for parents with bad credit, as they may have difficulty financing it themselves.
Stafford Loans are available at a lower interest rate than private loans. This means that the overall costs are kept very low. Repayment is deferred for up to 6 months after graduation, ensuring that the student has time to try to find a reliable source of income with which to repay the loan.
Many parents who help with student financing know that they must allow students to accept responsibility for the Stafford Loan, but often must make repayments themselves. However, there are strict limits related to the amount of money borrowed and the eligibility of the applicants. These student loans are only available to those who need financial help.
Consider a PLUS loan
When students are not eligible for federal loans and private loans, it is possible to obtain a PLUS loan on behalf of your own child. However, there are conditions to secure these student loans for parents, bad credit being one of the keys.
The PLUS Loan shifts the financial responsibility away from the student, so the parent assumes the full commitment. 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, helping to finance students in this way depends on the applicant having a good credit history. Recent bankruptcy rulings or loan defaults may mean that the loan will not be granted. In addition, obtaining other forms of financial aid will reduce the size of the student PLUS loan.
Co-Signed Student Loans
Finally, acting as a co-signer on a loan application can be a very effective way to obtain a student loan. For parents with bad credit, there may be a problem, as their role as co-signers is only acceptable if they have good credit scores and a reliable source of income.
Still, if your own signature isn’t enough, find a family friend or relative who might be a better fit. Remember, a co-signer only promises to make monthly payments when the borrower is unable to make them, effectively helping student finance as a backup instead of being the primary payer.
Also, the student is still the key borrower, so if the student loan defaults, even if it’s because the co-signer hasn’t made the payment, then it’s the student who suffers. His credit rating plummets and his future loan applications become dodgy.