Student Loans With No Cosigner Can Be Expensive
If you have no credit history or a poor or bad credit history then getting a student loan can be difficult. If however you can find a suitable person to act as a cosigner and to guarantee the repayment of your loan then this can ease your path to a loan considerably.
Students often have few if any credit cards, no car loans and very rarely have a home mortgage loan which means that they simply have no credit history against which a lender can judge the risk in granting them a loan. And, in those cases where students do have a credit history it is often less than favorable as, like many of us in our youth, they have made some unwise decisions and overstretched themselves with the result that they have run into problems making their repayments.
In either case the lack of a credit history or problems with late payments and perhaps even defaulting on a loan will often make a student a high financial risk as far as many lenders are concerned.
This means that loan officers, including those making decision on behalf of the Federal student loans programs, will often approach applications from students in this situation with caution. In many cases loan applications will be denied or, in borderline cases, loans may be approved but a higher interest rate will be charged to offset the risk and to compensate for higher default rates.
One way to counteract the lack of a credit history or a poor credit rating is for students to have a cosigner for their loan application. In many cases this will be one or both of the student's parents and loan officers will look then at the parent's credit history when deciding whether to grant a loan.
At the same time it is the parent's credit rating which becomes the primary factor in deciding the interest rate to be charged and those with a good track record will typically get the best rates, while those with lower credit scores will usually pay a higher rate. The difference can appear small at first glance but can in fact amount to a substantial sum over the standard repayment period of 10 years.
For example, one popular cosigner program offers loans at 4% for borrowers with a good credit history rising to 6% for those with a poorer but nevertheless acceptable record. This 2% difference may not seem like much but can amount to more than $5,000 over the life of a normal loan.
It is not at all uncommon these days for students to require as much as $100,000 to finance an undergraduate education and, even if interest is paid from the outset and is not accumulated, interest at the Stafford loan rate of 6.8% is almost $567 per month or $6,600 per year. Lowering that interest rate to 5%, which is the current rate for a need-based Perkins loan, reduces these numbers to $417 and $4,820 respectively.
It should also be remembered that these figures assume that repayment begins immediately. However, it is far more common for students to defer repayment until six months after leaving college and this will increase these figures considerably.
Students with a cosigner with a good credit record can not only increase their chances of getting a loan in the first place, but can also reduce their total loan repayment very considerably.
[Note: School loans that don't require a cosigner for students with a poor credit history are not easy to find and you should be very cautious about any lender offering guaranteed student loans without a co-signer.]
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