Student Loans With a Bad Credit History and Without a Cosigner Can be Expensive

If you have no credit history or a bad credit score then getting a college loan might not be so simple. If however you are able to get someone suitable to act as a cosigner and to guarantee your loan repayment then this will certainly help a great deal in securing a loan.

Most students generally have few if any credit cards, no not have car loans and very rarely have a home loan which means that they simply have little or no credit history against which a lender can assess the risk in giving them a loan. In addition, in those cases where students have a credit history it is all too often relatively poor because, as with many of us when we are young, they have made some irresponsible decisions and overreached themselves with the result that they ran into difficulties making their repayments.

Either way the absence of any credit history or a record of late repayments and perhaps even defaulting on a loan will usually place a student in a high risk category as far as many lenders are concerned. Consequently loan officers, including those responsible for taking decision on behalf of the Federal student loans programs, will usually handle applications from students in this situation with care. A lot of times loan applications will be turned down or, in borderline instances, loans may be granted but a high interest rate will be applied to balance the risk and as compensation for increased default rates.

One way to counteract the absence of any credit history or a bad credit score is for students to use a cosigner for their loan application. In many cases this will be one of the student's parents and loan officers will consider the parent's credit history when deciding whether to approve a loan.

At the same time it is the parent's credit history which becomes the chief factor in determining the interest rate to be charged and those with a superior history will typically get the best rates, whilst those with lower credit scores will generally pay a high rate. The difference might seem to be small at first glance but can in reality add up to a considerable sum over the normal loan repayment period of 10 years.

For instance, one popular cosigner loan program grants loans at 4% for borrowers with a superior credit score increasing to 6% for borrowers with a poorer but nevertheless satisfactory record. This 2% variation may not seem like much but can represent in excess of $5,000 over the life of a normal loan.

It is not at all unusual nowadays for a student to need as much as $100,000 to fund an undergraduate education and, even where interest is paid from the start rather than being rolled up, interest at the present Stafford loan rate of 6.8% is almost $567 per month or $6,600 each year. Reducing that interest rate to 5%, which is the current rate for a need-based Perkins loan, lowers these figures to $417 and $4,820 respectively.

It also has to be born in mind that these figures assume that repayment starts immediately. It is however much more usual for students to defer repayment until six months after college which is going to increase these figures significantly.

Borrowers who have a cosigner who has a good credit record will not only increase their chances of obtaining a loan in the first place, but will also reduce their total loan repayment greatly.

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