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Bad credit is likely to disqualify you from co-signing a private student loan for your child. It probably also will prevent you from taking out a private parent loan.
Students turn to parents to find funds for college because they have no credit history of their own.
Typically private lenders look for borrowers or co-signers with a steady income and a credit score of at least 670 on a 300-850 scale used by FICO, the most widely known credit score.
If you don't meet those standards, there are still ways to help your child get a loan for school. Here’s how.
Max out federal loans
Before you even consider private loans, make sure your child has borrowed the maximum in undergraduate federal direct student loans, which don’t require a co-signer or any credit history. They can get a federal loan by completing the Free Application for Federal Student Aid, or FAFSA.
The amount a student can borrow depends on what year they’re in, but the lifetime maximum for dependent undergraduates is $31,000. If your child qualifies for subsidized loans — which don’t build interest while they’re still in school — max out those first.
Get a parent PLUS loan
You’re unlikely to qualify for a parent loan with a private lender, but you might be able to get a federal direct PLUS loan. These loans do require a credit check, but the Department of Education is looking most closely for adverse credit history — negative marks on your credit report. Pull your free credit report to double-check if you have any red flags like bankruptcy, foreclosure or another financial misstep.
It’s still possible to get a PLUS loan if you complete PLUS Credit Counseling and either apply with an endorser — similar to a co-signer — who doesn’t have any adverse credit history or appeal the credit decision by detailing extenuating circumstances related to your credit.
If you don’t have adverse credit history, you can apply for a PLUS loan by completing the FAFSA and a separate PLUS loan application.
Even if you do have adverse credit history, you may want to apply anyway. If your PLUS application is denied, your student can qualify for additional unsubsidized student loans. The amount they qualify for will depend on what year they are in school.
Get a no-co-signer student loan
There are a few private lenders that offer student loans meant for borrowers who have no credit history or co-signer. These lenders typically do not factor in credit scores but instead consider future earnings. The downside is these loans usually carry higher interest rates than private loans with a co-signer.
Prepare to refinance ASAP
If your child gets a loan for bad or no credit, they should aim to refinance these loans after graduation as soon as their finances are stable and credit has improved. Refinancing means combining existing loans into a new one with a new and, ideally, lower interest rate.
They can refinance private and federal debt with private lenders. But if they refinance federal debt, they'll lose forgiveness opportunities and repayment options such as income-driven repayment.
Compare rates, benefits and drawbacks from multiple lenders before refinancing.