Tuesday, December 6, 2016

How to Take Out Student Loans Without a Cosigner

You want to take out a student loan, but without using a cosigner. While that’s not ideal, it’s certainly understandable.

Sure, getting your parents or a guardian to cosign your student loans would make it far easier to access financial aid, and if the cosigner has good credit, you’d likely benefit from a lower interest rate than you could get on your own.

But there are plenty of situations when you may need a student loan without a cosigner attached. Maybe your relationship isn’t strong enough to ask for that sort of help, or you simply don’t have anyone to ask. Whatever your reasons, if you want to take out student loans without a cosigner, try the following:

First, apply for every scholarship and grant you can find. That’s because, obviously, it’s free money, and you want to first see how much free money you can get before you start putting yourself in debt.

Kendra Feigert, director of financial aid at Lebanon Valley College in Annville, Pa., suggests that high school students check with their guidance office for local scholarships, but also devote some time to national scholarship searches. She says there are a lot of websites that allow you to search for grants and scholarships, including Fastweb.com, CollegeBoard.com and ScholarshipExperts.com.

Second, apply for federal student loans. Loans offered by the federal government don’t require a cosigner, whereas private student loans usually do — assuming you’re a high school student without a full-time job and little or no credit history to speak of.

That’s another perk of applying for federal student loans – you don’t need to have a credit history (except with PLUS loans). You’ll also typically get lower interest rates than on private student loans, and you’ll find that federal loans offer more flexibility when it comes time to pay them back, with options such as income-driven repayment plans.

You might even be able to get your federal student loans forgiven. This is rare, but if you’re a teacher in a low-income school, for instance, or you devote a decade to working in public service, you may be eligible to have your loan balance forgiven.

Anyway, you’re probably sensing an emerging theme here: Federal student loans are easier to qualify for without a cosigner, and financially easier to pay back than private loans.

Get acquainted with the FAFSA. If you’ve been looking into financial aid for, say, at least five minutes, you’ve already heard of the FAFSA (Free Application for Federal Student Aid). But in case you’re only in Minute Two of your research, here’s the lowdown: The FAFSA is an online form that you fill out, which will determine how much financial aid you’re eligible to receive from the federal government. Everyone who wants a federal student loan fills out the FAFSA.

And not to worry. The U.S. Department of Education’s office of Federal Student Aid offers more than $150 billion every year in loans, as well as grants and work-study funds. Most students are eligible to get something.

And the relatively good news is that you probably won’t walk away from FAFSA with too much debt, says Christopher Hanlon, director of financial aid at Albright College in Reading, Pa.

“There’s a misconception that large student debt is linked to federal financial aid programs,” he says. “In fact, the federal government goes to great lengths to be sure that debt is not overwhelming for student borrowers. Students eligible for the very maximum in undergraduate Federal Direct Stafford Student Loan will complete their undergraduate years with a student debt of $37,000. The great majority of students complete their undergraduate years with a total federal debt of $27,000.”

So why do so many people get stuck paying student loans until their retirement years? Well, plenty of students take out federal loans in addition to numerous private loans. And obviously your ability to pay off your student loans efficiently and relatively quickly often depends on what your career post-college is – and how quickly it takes you to find a career that’s well paying. Most new graduates don’t leave college making six figures (or deep into the five figures), and it’s always more lucrative to, say, own the restaurant than flipping burgers for the guy who owns the restaurant.

If you have to, you can apply for a private student loan. But it won’t be easy without a cosigner – which is the whole point of this piece – especially if you’re a high school junior or senior. Still, if this is a road you need to take – getting a private student loan without a cosigner – then you’ll want to start establishing your credit history.

The best way to do that is with a credit card. Some student credit cards are specifically geared toward young people trying to build their credit profile. But the Credit Card Act of 2009 made it hard to get a credit card without steady income. Some people have griped about that rule; as a (barely) survivor of a lot of credit card debt, I personally think this is a smart idea and makes a lot of sense. But, it does make it harder to apply for a credit card on your own if you’re, say, a high school or college student, or a stay-at-home spouse with access to household income.

So you may have to ask a parent or guardian to cosign a credit card for you while you build up a credit history, in order to eventually land a private student loan without a cosigner. I don’t like the irony there, either.

Anyway, if you do get a credit card with a parent or guardian as your cosigner (or if they add you to their card as an authorized user), from there, you’ll want to occasionally check your credit report and credit score to track your progress.

You can get a free copy of your credit report once a year from AnnualCreditReport.com. There are three main credit bureaus — Experian, TransUnion, and Equifax – so if you ask for your annual report from each of them at four-month intervals, you can get a version of your credit report three times a year.

You might also want to visit CreditKarma.com, any time, and get free credit scores from TransUnion and Equifax. These are calculated using the VantageScore model instead of the more commonly used FICO model, and there are minor differences between the two, but if you want to get a decent sense of what your credit score is, it’s a perfectly good way to get started.

But, again, hopefully you can find enough money for college without getting a private student loan. As noted, it can be more challenging to work with a private lender if you’re struggling to pay off a loan — you won’t find any alternative repayment plans or loan forgiveness. And generally, private student loans are more expensive than federal loans.

So if you want to get a student loan without a cosigner, go the federal student loan route. And take heart: As you do all of this extensive research into student loans and financial aid, it’s probably very good practice for all of the research you’ll do when you finally get to college.

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The post How to Take Out Student Loans Without a Cosigner appeared first on The Simple Dollar.


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