The cost of education is increasing. According to the College Board, the average cost of a college year ranges between $20,000 and $46k for public schools. The cost of college is much higher in private schools. The cost has been increasing over the years. In 1990, the average cost of college in a public institution was about $10,000. As a result of all this, America has seen the total value of college debt rise to more than $1.5 trillion. Therefore, in this article, we will look at some of the options that you have for student loans for bad credit.
The Best Option for Student Loan for Bad Credit
The best option that you have to access financing if you have bad credit is scholarship. Fortunately the value of scholarships in the United States has been increasing. This has increased as the total number of billionaires has been increasing. Most of these billionaires and millionaires donate to their alma mater. In 2013, the total donations to colleges reached a total of $34 billion. This has increased in recent years.
In 2014, hedge fund billionaire, Ken Griffin became the biggest donor to Harvard University. He donated more than $150 million. Michael Bloomberg donated $350 million to Johns Hopkins while Charles Johnson donated $200 million to Yale. Stephen Ross, who founded real estate giant, Related donated more than $200 million to the University of Michigan.
Indeed, while tuition costs have been increasing, 60% of undergraduate students in Harvard received financial aid. Students that are from families that make below $65k every year pay no fees while families that make between $65k and $150k pay no more than 10% of their income to attend the institution.
Therefore, if you have financial difficulties, we recommend that you consider applying for college aid from your campus.
Another option that you have is to use a company called Lambda School. The company’s model is that it pays your tuition and then takes a small cut from your salary when you get a job. The company focuses only on computer-science related courses. It has arrangements with companies like Google and Microsoft that give you work.
Student Loans for Bad Credit Option: Federal Student Loans
The next option that you have is to use loans from the federal government. These Federal Student Loans were created to help students go through college. They are usually better than private insurance in various ways.
Federal Loans vs Private Loans
- Federal loans have a lower interest rate than those from private institutions. This is because rates are usually set by congress. For example, interest rates for loans taken this year are between 4.53% and 7.08%.
- They have fixed interest rates, which means that rates will not change when you start repaying.
- While credit score is important, the approval period is usually less.
- The payment period is usually flexible. For example, you need to have a job to pay back the money.
- A likelihood for loan forgiveness and temporary stop payments.
To apply for a federal student loan, you just need to download and fill a form from the Federal Student Aid. To do so, you need to create an ID in the website. After you fill this form, you will receive the feedback from FAFSA. This will tell you whether you qualify for the loan or not.
There are four main types of Federal Student Loans. These are:
- Direct subsidized loans. You get these loans if you show that you really need the loans.
- Direct unsubsidized loans. This is a loan for both graduate and undergraduate. You can qualify for it if you fail to get the direct subsidized loan.
- Direct PLUS loans. These are loans for both graduate and undergraduate students. To get these loans, a credit check will be required.
- Direct consolidation loan. You get these loans if you have graduated and have multiple federal loans.
Student Loans for Bad Credit: Private Student Loans
Private student loans are other options that you have if you have failed to secure government financing and a scholarship. There are several banks, credit unions, and online lenders that can give you this financing. These institutions will always check your credit score. However, these loans usually attract a higher interest rate because you are considered a high-risk customer. To reduce your rates, we recommend that you do the following:
- Have a cosigner. This is also known as a guarantor. This could be a friend or family member that has a good score. The financier will be at peace because they can go to the cosigner if you are unable to pay the money. This method is so popular such that most student loans have a cosigner.
- Have a collateral: This is popular among older people who have some assets. In this method, you provide your asset to act as a security for the loan.
Whenever you’re considering personal loans with bad credit, be aware of the costs and the burden this can have on your life.
Final Thoughts on Student Loans for Bad Credit
Having a bad credit is one of the worst things that you can ever go through. This is because financiers will always have a challenge of giving you money. When looking for a student loan and you have bad credit, we recommend that you try looking for financial aid and getting funds from the government. We also recommend that you take time to consider the course you want to do. Some courses are simply not marketable. Indeed, most people with college debt complain about lacking a job or having a job that pays very little. We also recommend that you take the cheaper online courses offered by the likes of EDX and Udacity.
Crispus is a finance professional with more than a decade experience in the industry. Over the years, Crispus has written in-depth articles on leading platforms like CCN, Marketwatch, and Seeking Alpha. He also runs a Forex education and managed account company called WestEndFx.