Without good credit, it can be nearly impossible to take out a loan, qualify for a mortgage, or even get approval for an apartment lease.
What’s more, most people don’t start building credit until they’re 18 or older. After all, you can’t take out a loan or credit card until you reach that age. So how can you take out student loans for college when you have no credit history?
Don’t worry. You can still borrow money to pay for school. Here’s how to get student loans to fund your education when you have no credit.
1. Submit the FAFSA for federal student loans
When researching how to get student loans for college, you should first look into Direct Loans from the Department of Education.
These loans tend to have the lowest interest rates on the market: a fixed rate of 4.45% as of July 1, 2017. Plus, they come with borrower protections, including income-driven repayment plans and eligibility for forgiveness programs.
But one of the biggest perks of Direct Loans is that you don’t need credit to qualify. In fact, you can get these student loans without a cosigner and without a credit history.
Instead, all you need to do is submit the Free Application for Federal Student Aid with your and your parents’ financial information. Based on factors such as your family size and income, the DOE will determine your eligibility for need-based and non-need-based aid.
Your college will send you a financial aid package, and it will include a mix of grants, federal student loans, and work-study. You’re not obligated to accept any loans, but they can be a useful tool as you figure out how to pay for college.
Make sure to come up with a repayment plan so you don’t take on too much student loan debt to pay for your degree.
2. Apply for a private student loan with a creditworthy cosigner
As you figure out how to get student loans, you’ll notice that federal student loans tend to have the best rates and terms for student borrowers. However, private student loans can come in handy if you need additional funding.
But unlike federal student loans, you can’t get private student loans without a cosigner or credit history. If you don’t have strong credit, you’ll need to apply with a cosigner, such as a parent or close relative, who does.
Applying with a cosigner is typical for most undergraduates. According to data firm MeasureOne, the vast majority of private student loans (94%) were issued with a cosigner in the 2015-2016 school year.
Even if you can get approved on your own, applying with a creditworthy cosigner can help you snag a lower interest rate. Getting the lowest possible rate will reduce your cost of borrowing over the long term.
That’s why you and your cosigner should check out private student loan companies before choosing a loan. Apply for a quick rate quote from multiple lenders to see preliminary offers.
Besides comparison shopping, you and your cosigner should have an honest conversation about what it means to share debt. Both of you will be responsible for the loan, and your cosigner’s credit could get dragged down if you miss payments or enter student loan default.
By discussing expectations, you can prevent future conflicts.
3. Ask your parents to take out a Parent PLUS Loan on your behalf
Your third option for how to get student loans without strong credit involves the federal Parent PLUS Loan.
Parent PLUS Loans allow parents to take on student debt to help pay for their child’s college education. They come with a fixed interest rate of 7.00% and an origination fee of 4.264% as of Oct. 1, 2017.
Since your parents take out these loans, you’re not technically responsible for the debt. But you could work out an informal arrangement wherein you handle repayment after graduation.
Unlike Direct Loans, Parent PLUS Loans come with a credit check. If your parents have adverse marks on their credit history, they won’t qualify for this loan.
Parents that qualify can borrow up to your cost of attendance minus other financial aid you’ve received.
Before taking out a Parent PLUS Loan, you and your parents should familiarize yourselves with the repayment options for this loan type.
For instance, Parent PLUS Loans are eligible for these repayment plans:
- Standard Repayment Plan
- Extended Repayment Plan
- Graduated Repayment Plan
- Income-Contingent Repayment if you consolidate the loan first
Parent PLUS Loans don’t qualify for these repayment plans:
- Income-Based Repayment
- Pay As You Earn
- Revised Pay As You Earn
To take out Parent PLUS Loans, your family must submit the FAFSA. You should also speak with your school’s financial aid office for any additional instructions on how to apply. For example, you might be asked to request the loan through StudentLoans.gov.
Be proactive about building your credit
When you’re fresh out of high school, you don’t need strong credit to take out student loans. By submitting the FAFSA, you’ll be in the running for federal student loans, not to mention need-based grants and work-study.
But a good credit score will be important in the future, especially if you want to take out your own private student loans later. So take steps to build your credit, such as using a credit card responsibly and paying off your debt on time.
To further improve your credit, check out these 10 ways to increase your credit score.
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