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Student Loans For Bad Credit - Finding Student Loans for Bad Credit

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Though a good credit score is necessary to secure good loans for cars, houses, and other life purchases, it remains possible to find student loans for bad credit. More than any other kind of purchase, education is looked at as a sound investment. Not only does the United States government offer a wide variety of educational loans which ignore credit histories, but a friendly co-signer can also allow for borrowing from non-government lenders. Even in these cases, student loans carry significant risk, and as of 2010, these risks can in some cases be more dangerous than other bad credit loans.

The federal government offers two primary student loans: Stafford Loans and Perkins Loans. The Stafford is by far the more popular of the two, and it is distributed mostly through the FAFSA, or Federal Application for Student Aid.

Many government loan options are determined by financial need. The Perkins Loan is a low-interest (5% at present) loan intended for those with great financial needs. Pursuing a career in a military, public service, or educational field can actually cancel this debt, giving Perkins recipients the ability to work off their loans by dedicating themselves to efforts which Perkins committees consider important.

Moderately disadvantaged students may receive a subsidized Stafford Loan. This loan is highly generous in that the government pays any interest which accrues during the entire time a borrower is in school and for six months thereafter. Other students must settle for an unsubsidized Stafford Loan, which is available to any American student. Though this loan also does not consider credit history, it is a much smaller loan and is often not enough to sustain a student in college.

Additionally, the Pell Grant is a need-based grant—that is, a gift from the federal government. Awarded primarily to low income full-time students, it awards up to $4000 to offset the limitations created by economically limited backgrounds.

A common criticism of these three forms of loan is their inability to keep pace with tuition costs. It is comparatively easy for a board of directors to talk themselves into raising tuition prices than it is for the United States to talk itself into spending more money on a given project. Furthermore, some borrowers do not qualify for much aid, such as those leaving upper middle class homes for sudden and expensive independent living. For this reason, many such borrowers must turn to other sources.

The government is not the only source of student loans for bad credit; family members provide another route to financing education. Federal PLUS Loans provide a way for parents and guardians to use existing credit scores to borrow in a student’s name. Providing a fixed, tax-deductible interest rate, it gives a chance for less disadvantaged students to pursue their education.

Similarly, parents can co-sign for many traditional loans, offering their own credit history as insurance that the loan will be repaid. Many such loans provide means for students to claim the loan fully on their shoulders after months of punctual payments, which can provide a handy negotiating tool for student borrowers whose parents are reluctant to sign for such an investment. More importantly, inheriting such a loan will begin to rebuild the bad credit score which led to needing a co-signer in the first place.

Student loans, bad credit or otherwise, do carry risk. While universities used to trumpet a B.A. as the route to job security, the resulting overabundance has made unemployment a genuine difficulty for degree-holders. Some students graduate only to find themselves unable to get a job to pay for children, car payments, rentals, health insurance, etc. The loan providers are at risk as well, which is why the federal government has for years been providing cash incentive and legal promises to banks which lend to students at low rates. To that end, student loans have been known to cling to even bankrupt borrowers. The Supreme Court continues to support these stringent rules for student borrowers—as recently as March 2010, the United States Aid Fund vs. Espinoza upheld the rule that “undue hardship” is required for a borrower to declare bankruptcy on student loans.

Though all loans contain risk, bad credit student loans are a lesser evil among other bad credit borrowings, in part due to a widespread democratic belief in the value of higher learning. The best money is available to the most disadvantaged through federal loans like the Pell and Stafford, while co-signers provide a way to build trust with private lenders. With the risks in mind, student borrowers can pursue the most advantageous investments available while preparing themselves for the pitfalls along the way.

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