I talk a lot on The Empowered Dollar about avoiding student loan debt. It’s a very personal subject for me, and I regret some of the decisions I made when I took out student loans.
I also know some parents don’t have a choice when it comes to borrowing for their child’s college education, and most families will have to take out some loans to help pay for even a decently priced university.
But if you’re a parent with bad credit, your options for paying for college can feel limiting.
Take a mother’s story like Martha’s, for example (in case you’re wondering, Martha is not her real name)
Martha, like other parents with a not-so-stellar credit history, is in a tough spot.
Unfortunately, if you’re a parent with bad credit like Martha, a Parent PLUS loan is not an option. But bad credit doesn’t mean you shouldn’t apply for a Parent PLUS loan or give up on your loan options.
3 Steps for Getting More Student Loans, Even with Bad Credit
1. Appeal to Reverse the Decision
If it’s within about a month or 45 days of the application, she can likely file an appeal to reverse decision with the school,” says Graham Batzler, co-founder of MaxFinAid.org. If it’s beyond the allowed time frame or the college does not allow appeals, then Martha is likely out of options for receiving a parent federal loans. But oddly enough, getting denied for a Parent PLUS loan actually opens up other student loan options for her daughter.
2. Increase Your Stafford Loans
If a parent is denied a Parent PLUS loan, the student becomes eligible for an increased amount in unsubsidized Stafford Loans. According to FinAid.org, students whose parents were denied a PLUS loan are eligible for an extra $4,000 in unsubsidized loans. And good news for credit-impaired parents: the Stafford Loan is not a credit-based loan.
Stafford loans seems like a better option than the Parent PLUS loan, anyways. “Though Stafford loans are in the student’s name, the interest rate is lower,” explains Batzler. “Depending on the school and the situation, Stafford loans have a 6.8 percent interest rate or lower, while PLUS loans are 7.9 percent.” According to Batzler, because of an increase in eligibility for the amount of Stafford Loans a student can take out, some parents actually apply to Parent PLUS to be denied on purpose – just to have their students eligible for the lower interest rate.
3. Out of Federal Options? Try Local Private Loans
Maximizing your federal student loan options first is always smart. But what if you still don’t have enough money to cover the bill?
Private loans are the next place to turn. If you’re a parent like Martha, you might have already applied to some private loans, only to discover that your son or daughter needs a reliable, creditworthy cosigner on the loan.
Instead of heading over to the big banks or answering the advertisements you see online, try approaching your local lenders first. “Small banks or credit unions local to your area may be more flexible with interest rates or repayment plans, especially if you’re already a customer or your student is attending a local school,” advises Batzler.
If you’re looking to borrow from a bigger bank or credit union, Batzler warns to look up the financial institution reviews first. Sites like Student Lending Analytics and Cheap Scholar are great resources for scouting out school loan options.
Of course, even after dishing out all of this information about how to qualify for student loans, I have one last piece of advice: try to avoid borrowing for college in the first place.
I hope hearing about one parent’s struggles to qualify for loans is enough to inspire anyone who doesn’t yet have a son or daughter heading off to college to plan ahead. When it comes to paying for college, keep saving, shop around and make sure your child is actively applying for scholarships. But most importantly, start planning now.