Even though I received a scholarship to attend school, I knew it wouldn’t be enough to completely cover the costs. After all, going to college isn’t just about the tuition. You also need to buy books and pay for a place to live.
I knew I needed student loans, but I was 18 years old with no credit history. Here’s how I managed to get student loans with no credit — and how you can, too.
Getting federal student loans with no credit
There’s no credit check when you apply for undergraduate federal student loans. Instead, what you borrow is based on need and how much it costs to attend your school.
The Free Application for Federal Student Aid (FAFSA) allows you to access federal student loans. You provide information about how much money you make, and what you have saved up. Your parents’ incomes and assets are also considered. Other considerations, like whether you have a scholarship offer, are also taken into account.
Once you fill out the FAFSA, the information is sent to the schools of your choice. They put together a financial aid package, which can include grants as well as subsidized or unsubsidized students loans. My first year of college, I only qualified for unsubsidized student loans, which meant the government wouldn’t pay my interest while I was in school, as is done with subsidized loans.
Thanks to the federal loan program, I was able to get student loans with no credit, and without the need for my parents to go into debt for my higher education. However, in order to keep taking advantage of federal loans, you have to fill out the FAFSA each year. You’ll only get enough money in loans to get you through a single year of schooling otherwise.
Completing the FAFSA each year allows your school to reassess your ability to pay for college. If you have siblings attending college, or if your family’s financial situation has changed, you could be offered a different financial aid package the next year. No matter what, though, you won’t need to go through a credit check to qualify.
Getting private student loans with no credit
Unfortunately, there are situations where federal help just isn’t enough to pay for your college-related expenses. When that happens, you might have to turn to private student loans.
Private lenders are much pickier about your credit situation. For me, the cost of grad school was beyond the limits set for federal loans. To bridge the gap, I turned to private lenders who wanted to check my credit. Luckily, during my time as an undergrad and in the two years after, I had built my credit score. My credit was good enough to allow me to borrow money from a private lender.
That isn’t the case for everyone. So, how do you get student loans with no credit when private lenders care so much about it?
The answer is a cosigner. If you don’t have a credit history, a cosigner with good credit can save the day. In fact, my husband didn’t have a thick enough credit file and was unable to get a private student loan by himself. I cosigned his student loan so he could start grad school.
You do have to be careful with private student loans, though. Even though it’s possible to borrow money at a lower interest rate than what federal loans charge, your situation could lead to a higher interest rate. Federal student debt comes with prescribed interest rates. Private student loans don’t.
Finding a cosigner
A cosigner is one way to close your college funding shortfall without having a credit history. I felt good about cosigning my husband’s debt because we shared finances as a married couple and the amount was relatively small — only $4,000.
And that’s exactly where you should start when looking for a cosigner. Family and friends are more likely to cosign for you because they know you and your goals.
As you look for a cosigner, point out your ability to repay the loan later. Back up your assertions with the fact that you have met other obligations in the past. Showing that you are responsible and willing to repay the debt can go a long way toward helping you secure a cosigner.
Even though cosigners take on responsibility for the loan, they might be willing to brave the risk to help you. Agree to remove their name from the loan or refinance your student loans when you finish school and have a job.
Work on building your credit throughout college so you have the ability to take on your obligations without help. That way, your cosigner knows they won’t be on the hook forever.
Rather than trying to get student loans with no credit, it’s possible to turn to an income-share agreement. Schools like Purdue University are trying out these arrangements, in which students promise a percentage of their future earnings to investors willing to pay for their schooling.
It’s not exactly a loan, though. You promise that a percentage of your income will go to a benefactor. Usually, according to Business Insider, you surrender a portion of your income for no more than 10 years.
So, the backer essentially takes a chance. “If graduates get good jobs with nice salaries, those investors can make out quite nicely,” reported Business Insider. “But investors also assume the risk that the graduates could end up at low-paying jobs or, worse, unemployed.”
Depending on the terms of the income-share agreement, you could end up paying less than if you borrowed the money, thanks to interest saved over the course of several years — especially if your alternative is a private student loan with a higher interest rate.
Looking for ways to pay for college
In the end, paying for college is about assembling your resources. If you have time, you can save up using something like a 529 plan to reduce your need for student loans. You can also work part time during school, or apply to be a resident advisor for the free housing (like I did for two years in undergrad).
Student loans are only part of the puzzle when it comes to paying for your higher education. They are an important part, but they aren’t the only part. Review your options and get creative. If you can avoid getting student loans, or reduce what you borrow, your credit becomes less important — and you can avoid some of the interest costs that come with loans.
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