With the cost of university tuition, administrative fees, books and living expenses rising every year, paying for college is becoming an increasingly costly pursuit. In many situations, federal Pell Grants and Stafford Loans cannot cover all the costs of attending college. Private student loans can help fill the divide between financial aid and college expenses. However, many private students loans require applicants to have an established good credit history to obtain financing.
Background
Unlike the federal government, private banks and other for-profit lending agencies view applicants for student loans no differently than they do applicants for mortgage, car or personal loans. They consider credit history, credit score, current and past income and employment history when deciding whether to issue student loan financing to an applicant. Unfortunately, this excludes many traditional college-aged students, as they typically do not have lengthy employment or credit histories or high incomes.
Credit Score Requirements
Private student lending businesses have stringent credit requirements for applicants. Individuals with a credit score of less than 630 to 650 are unlikely to qualify for private student loans, according to FinAid, a collegiate financial aid informational website. Individuals with FICO scores below this range will find it very difficult to obtain private loan financing. Someone with no credit history will have a zero credit score, making it nearly impossible for her to obtain a private student loan.
Exceptions
As of February 2011, the only option for students without established credit histories to acquire a private student loan is to find a creditworthy co-signer, often a parent or grandparent, to sign the loan. This means if the student "defaults," or fails to pay, the co-signer would be legally liable to pay the balance of the loan. Additionally, the co-signer's credit score and credit history would take a hit if the student defaults on the terms of the loan.
Alternatives
Students without lengthy credit histories should consider other sources of financing before looking at private student loans. Many financially needy or academically exceptional students can qualify for university-based or private scholarships and grants. Unlike loans, students do not need to repay the money from scholarships or grants. Additionally, working a part-time job while in college can provide valuable work experience in addition to providing extra funds to cover living expenses and tuition fees.
Tags: credit score, student loans, credit histories, private student, student loan, credit history