Parents are proud that their son or daughter is pursuing a degree. However, there are some concerns, especially financial, as the cost of a college education can be extremely high. That’s why student loans are an essential part of a college education, especially for parents with poor credit.
But what are the options for parents who can’t afford tuition and living expenses? Student financing is a good idea, but do they qualify for the programs that matter? These are just two of the questions that come to mind. The good news, however, is that there are many funding options available.
Below, we highlight three of them, from the ever-popular Stafford Loan to the PLUS Loan, which provides financial relief to the student, to the cosigner, which guarantees student loan approval.
Consider a Stafford Loan
One of the most popular forms of financial aid for students is the Stafford Loan program, which provides funds to students from families who cannot fully support their children. This is a very popular student loan, especially for parents with poor credit, as they may have difficulty financing it themselves.
Stafford loans are available at a lower interest rate than private loans. This means that the overall cost remains very low. Repayment is deferred until 6 months after graduation, giving students time to find a reliable source of income with which to repay the loan.
Many parents who finance students know that they must allow the student to take responsibility for the Stafford loan, but often make the repayments themselves. However, there are strict limits on the amount of money borrowed and the eligibility of applicants. These student loans are only available to those who need financial assistance.
Consider a PLUS Loan.
If students are not eligible for federal loans and private loans, it is possible to obtain a PLUS loan for your own child. However, there are certain conditions under which parents can receive these student loans; the most important being a poor credit score.
The PLUS loan shifts the financial responsibility from the student to the parents, who thus assume the entire obligation. The funds can be used to cover both tuition and living expenses. The loan has a lower interest rate than usual (7-8%) and is repaid in equal amounts over an agreed period of time.
However, this student financing depends on the quality of the applicant’s credit history. Bankruptcy decisions or recent defaults may result in the loan not being granted. In addition, the amount of the PLUS loan will be reduced if other forms of financial aid are used.
Co-signing student loans.
Finally, co-signing a loan application can be a very effective way to obtain a student loan. This can be a problem for parents with poor credit, as co-signing is only allowed if they have good credit and a reliable source of income.
However, if your own co-signer is not sufficient, contact a friend or relative who may be a better fit. Remember, a cosigner only pays for the monthly repayments if the borrower is unable to do so; therefore, they contribute to the financing of the student loan as a co-contributor, not as the primary payer.
In addition, the student remains the primary borrower. So, if the student loan is not repaid – even if it is because the co-signer failed to repay – it is the student who suffers the consequences. Their credit score drops, and future loan applications are called into question.