College Loans With A Poor Credit History And Without A Cosigner Can Be Expensive

If you have no credit history or a poor or bad credit score then obtaining a college loan may be hard. If however you are able to get someone suitable to agree to be a cosigner and guarantee the repayment of your loan then this will certainly help you to get a loan.

Most students usually have few if any credit cards, no not have car loans and very rarely have a home loan which means that they have no credit history against which to assess the risks in giving them a loan. And, where students do have a credit history it is frequently relatively poor because, as with a lot of us in our youth, they have made some irresponsible decisions and overstretched themselves so that they ran into difficulties meeting their repayments.

Either way the absence of a credit history or problems with late repayments and perhaps defaulting on a loan will usually place a student in a high risk category as far as the majority of lenders are concerned. As a result loan officers, which includes those taking decision on behalf of the Federal student loans programs, will generally approach applications from such students with care. In many cases applications will be denied or, in some instances, loans may be granted but a high interest rate will be charged to balance the risk and to compensate for higher default rates.

One method of counteracting the absence of a credit history or a bad credit score is for students to have a cosigner on their loan application. In most cases this will be a parent and loan officers will consider the credit history of the parent when deciding whether to approve a loan.

In this case the parent's credit history becomes the primary factor in deciding the interest rate for the loan and those with a good history will more often than not get the best rates, while those with low credit scores will generally pay a high rate. The difference may appear small at first glance but can in fact add up to a significant sum over the normal repayment period of 10 years.

As an example, one popular program offers loans at 4% for borrowers with a superior credit score rising to 6% for those with a poorer but still satisfactory record. This difference of 2% might not seem like much but could amount to in excess of $5,000 over the life of a loan.

It is not at all unusual today for a student to need as much as $100,000 to fund an undergraduate education and, even if interest is paid from the outset and is not rolled up, interest at the Stafford loan rate of 6.8% is approximately $567 each month or $6,600 each year. Lowering that interest rate to 5%, which is the present rate for a need-based Perkins loan, reduces these figures to $417 and $4,820.

It should also be remembered that these numbers assume that repayment begins straight away. It is however far more usual for repayment to be deferred until six months after leaving college and this is going to increase these numbers greatly.

Students who have a cosigner who has an excellent credit record will not only increase their chances of getting a loan in the first place, but they will also lower their total loan repayment very considerably.

TheStudentLoansCenter.com provides information on a range of topics including a bad credit student loan with co signer and bad credit alternative student loans.