College is expensive, and many students use financial aid to pay for tuition, books, and other education-related expenses. Student loans are the most common type of financial aid. With so many loan programs available, there is more than one way to find money for school. Whether you have good credit or bad credit, banks, credit unions, and Federal loan programs offer packages to fit every need. Of course, if you want to maximum your loan choices, a good credit history is imperative. While bad credit will not disqualify a student loan applicant, bad credit student loans come with steep penalties and higher rates.
Bad Credit Private Student Loans
If you're looking for a bad credit student loan, many financial institutions are able to help. Banks and credit unions value education, and they realize that knowledge can lead to smarter credit and financial choices. Student loans acquired from a bank or credit union are termed private student loans because the Federal government does not finance them. Consequently, private student loans have strict loan requirements.
Prior to funding a private student loan request, a bank or credit union will examine the applicant's credit history. Since most private lenders offer bad credit student loans, the purpose of a credit check is not to approve or deny the loan. Rather, a credit check helps the lender determine the level of risk. Depending on the severity of bad credit, the interest rate on the student loan will be either comparable to other loans or much higher.
Federal Loans for Students with Bad Credit
Since private lenders offer higher rates to students with bad credit or no credit history, many students turn to Federal Direct Loan programs for assistance. Federal loans such as the Federal Stafford and Federal Perkins are government programs developed for students with bad and good credit. The Federal government insures these loans; Thus, bad credit students can qualify for very low interest rates.
Despite non-credit based Federal loan programs offer easy approvals, the loan amount per year is typically small and may not cover all tuition expenses. Students who need additional funds may have to apply for a private student loan. In this case, improving a low credit score can open the door to better rates.