Private student loans are usually the last financial source explored when all other avenues have been applied to. Most students are actually eligible for federally assisted loan programs which offer lower interest rates than those available elsewhere for students. There are two main federal Stafford loans, one needs based and one not, and these are guaranteed by the federal government. Because of this there is no need for credit checks or co-signers.
When the student has been granted federal assisted loans, plus any scholarships or grants on offer, there is generally still a gap in costs which needs to be met from somewhere, and unless wealthy parents are stepping in to either pay these costs, or take a federal PLUS loan on behalf of the student, then private student loans are a necessary thing.
It is quite easy to acquire a private student loan as many banks and finance institutions offer them. As it is impossible to discharge student loan debt, even with bankruptcy, they are a popular lending tool for the banks. Certain requirements need to be met in order to obtain a private loan. The student must be over eighteen, be accredited to a school and be enrolled in a study program. The student must also present a good credit history.
Due to the average age of students applying it is most unlikely that many will have had chance to establish any worthwhile credit history; it is not necessarily that they have a bad credit history but rather no credit history. As a private loan is dependant on credit checks then the bank will expect a co-signer to endorse the loan on behalf of the student. This may be fine for some parents who have the means to be responsible for the loan, and are willing to co-sign, but it is also possible that this may too much of a commitment for a parent to take on, or that they themselves have a bad credit history. The credible institutions advise you to apply and say they will let you know if it is viable, but they are more than likely to turn down your application without a co-signer.
So what are the options for a student seeking a private student loan without a co-signer. In actuality the loan will be almost impossible to obtain without a co-signer. Advertisements abound with the words ‘no co-signer student loan’ but in reality these point back to the federal loans which the student probably already has lined up. The simple truth is that no bank wants to give a substantial loan to a young person with no credit history, unless there is someone willing to endorse it. It may be possible to find a lender who is willing to do so, but you can be sure they are not reputable and will charge a much higher than average interest rate.
This only leaves two options if a private loan is needed. The student must work whilst at college, and have proof of a regular income. Or the student must think ahead and establish a credit history well before applying for a loan. If a student or their family start to research student loans well in advance of needing them then it is possible to establish a solid credit history.
The student should have a checking account, and take a secured credit card, and use it for small purchases to build up a pattern or trustworthy repayment. This could lead to an unsecured credit card which would just be used to further build up a credit history. If the student is able to present for a loan with a good credit history in their own name then they are more likely to be approved without a co-signer. There is even the option of the student taking a year out first and working, again to establish a good credit history, and also to bolster their bank balance which will help with repayments of interest on a private student loan.
Despite the advertisements you may see for ‘no co-signer student loans’ be aware that these are rarely available at all, unless you already have your own solid credit history. Plan as early as you can for your college education by investigating every avenue of finance. With early applications for scholarships and grants, plus federal loans, it may be viable to manage without a private loan if no co-signer is available, as long as you are prepared to work while you study.