Credit plays a role in determining your eligibility for private student loans, Direct PLUS loans or Direct Grad PLUS Loans. Direct Stafford loans and Perkins loans are not based on credit however you cannot obtain either if you are in default on another federal student loan or owe a refund on a Title IV grant such as the Pell grant.
Can I Get a Student Loan with Bad Credit?
Yes. Direct Stafford loans are not based on the student’s credit history or credit-worthiness. A student wishing to borrow a private student loan, a Grad PLUS loan or a parent wishing to borrow a PLUS loan with adverse credit can borrow as long as they are able to obtain a credit worthy co-signer. In the PLUS program, a co-signer is referred to as an endorser.
Who Can Co-sign for a Loan?
Often, a student or parent will solicit a family member with good credit to co-sign or endorse their loan. However, any creditworthy individual can co-sign another’s loan. As long as the co-signer meets the credit requirements established for the loan being sought, that person can co-sign.
What are the Responsibilities of a Co-signer?
By co-signing a student loan, the co-signer is assuming the responsibility to repay the loan in the even the primary borrower fails to do so. As such, a co-signer is assuming all of the same obligations of the primary borrower. As a co-signer, it’s important to consider your ability to assume the financial responsibility of repaying the borrower’s loan in the event they cannot do so.
What is ‘Good Credit’?
There’s no hard and fast answer to this question. Private student loan lenders establish their own underwriting criteria for the loans they offer. Underwriting refers to the requirements lender set for a borrower to qualify for a particular loan program. These criteria can include the borrower’s credit score based on reporting from one (or more) of the three major credit bureaus. Your credit report and score give the lender the ability to review such items as collections, judgments, payment history and other factors in determining whether or not to make an offer of credit to you. A lender may also evaluate how much debt you have in relation to your income–known as debt to income ration. These credit criteria apply to co-signers as well. Each lender sets their own criteria.
In the case of federal Direct PLUS and Grad PLUS loans, the borrower is deemed to have an adverse credit history if there has been a default determination, bankruptcy discharge, foreclosure, repossession, tax lien, wage garnishment, or write-off of a Title IV debt within the last five years or a current delinquency of 90 or more days on any debt.