by Robyn Stewart, former financial aid officer at College of the Holy Cross
Question: If I’ve had credit issues in my past, will I still be able to get a loan to pay for my child’s college education?
College Coach’s college finance experts get asked this question frequently and there is no simple answer. Unfortunately the true answer is that it depends. Credit issues can certainly impact your ability to borrow and to earn a competitive interest rate on an education loan. This doesn’t mean that you should rule out using student loans as part of your paying for college strategy.
Find a Co-Borrower
Many education loans for parents are available with a co-borrower. If you have a friend or family member who is willing to back your loan, you may be able to get a loan even with poor credit. If your state or the state your child’s college is located in offered a loan for parents of college students, you may find this option gives you access to the best unsecured education loans available.
Apply for the Parent PLUS Federal Student Loan
Parents should apply for the most competitive loans first. They may qualify for the federal PLUS Loan, a program that allows parents to borrow on behalf of their undergraduate child, at any time, even after being denied credit from other lenders. The Parent PLUS Loan program may prove more practical than private loan programs since the criteria for approval is simpler. The lenders look at recent bankruptcies, overdue payments, and lender charge offs rather than a borrower’s debt-to-income ratio. If a parent is denied the Parent PLUS Loan, they may appeal the credit decision or add an endorser (co-signer) to the application.
Alternatively, the child of a denied Parent PLUS Loan applicant can borrow additional funds from the Unsubsidized Direct Loan program (though perhaps not as much as you would like). Parent PLUS Loans have generous repayment options and relief programs for borrowers experiencing financial hardship. If financial worries reappear in your future, having a lender who can work with you is a true benefit.
Consider a Private Student Loan
Depending on the nature of your prior credit issues, it’s possible you may still qualify for a private student loan, though private banks tend to have more stringent credit criteria than the Parent PLUS program. It may be useful to contact a few lenders, especially those with whom you have relationships (i.e. hold another product of theirs, like a high yield savings account) and see what sort of rate you would qualify for on a loan. Additionally, if you are not approved, you have the opportunity to use a different co-signer on the loan for your child to secure a private loan to cover the cost.
Use a Home Equity Loan
Another option some families may have is to consider a home equity loan. If a family has equity in their home, then a loan of this sort may offer the lowest interest rate option available. You can still be denied a home equity loan due to credit issues. If you have some concern about your employment security or possible health issues, a home equity loan may be particularly risky, as your home is used as collateral.
Look into Your College’s Different Payment Options
Lastly, families should take advantage of payment plans offered through the college. These don’t require credit checks and are a way to spread payments out over the course of several months rather than being hit with a large bill that is due even before the student steps foot on campus.