College-Bound With Bad Credit? You Still Have Options

By Dawn Handschuh, Personal Finance Writer   

When you're used to flipping burgers after school for $9 an hour, thinking of how you'll qualify for — and pay off — a student loan can be a bit of a shock. Having a poor credit history can complicate things when you want a reasonably priced college loan.

For many students, having a poor credit history may simply mean having no credit history, perhaps because you spent more time thinking about grades, prom dates or football practice than how to build a credit history. It's understandable.

There are still two ways you can qualify for student loans having a bad credit

  1. Obtain government loans that don't require a credit check.
  2. Obtain a private student loan with a co-signer.

Government student loan options

The U.S. government offers two types of loans, neither of which requires a credit check — Federal Perkins Loans and Stafford Loans.

Nearly all students qualify for Stafford Loans (unless you've defaulted on a federal student loan before), but, like Perkins Loans, they may not cover all your costs, so you'll have to supplement with other funding sources. The maximum size Perkins Loan is just $4,000 a year for undergrads ($6,000 annually for graduate students).

Another option? PLUS loans, which are granted directly to your parents (based on their credit histories) for your education.

Co-signed private student loans

Unlike most federal school loans, your credit history will be scrutinized when you apply for a private student loan. If your credit score is too low, your application will be denied or, if accepted, may trigger much higher interest rates.

You can obtain the loan you need with a credit-worthy co-signer. This can be a parent, grandparent or your favorite uncle. The lender will use your co-signer's credit history as the basis for lending you money.

When shopping for a private loan, make sure you're doing business with a reputable lender. Ask questions and bring a trusted friend (or your co-signer) along for support.

Even if you wind up with high-interest student loans, remember that your college education is the foundation for a lifetime career and should never be considered a bad investment.