If you have no credit history or a poor credit history then finding a college loan can be hard. If however you can find someone suitable to agree to be a cosigner and to guarantee the repayment of your loan then this will certainly help a great deal in securing a loan.
Most students frequently have few if any credit cards, no car loans and very rarely have a home loan which means that they simply have little or no credit history against which to judge the risk in granted them a loan. Additionally, in those cases where students have a credit history it is frequently less than favorable because, as with a lot of us when we are young, they have made some hasty decisions and overstretched themselves so that they ran into difficulties meeting their repayment obligations.
In either case the absence of any credit history or problems with late payments and possibly defaulting on a loan will often place a student in a high risk category so far as the majority of lenders are concerned. As a result loan officers, including those responsible for taking decision on behalf of the government's Federal student loans programs, will usually approach applications from students in this situation with caution. A lot of times loan applications will be turned down or, in borderline instances, loans may be granted but a high interest rate will be charged to balance the risk and to compensate for higher default rates.
One method of counteracting the absence of any credit history or a poor credit record is for students to have a cosigner on their application for a loan. In most cases this will be a parent and loan officers will look then at the parent's credit history when deciding whether or not to approve a loan.
In these circumstances the parent's credit history becomes the principal factor in deciding the interest rate to be charged and parents with a superior history will characteristically receive the best rates, while parents with low credit scores will normally pay a high rate. This difference can appear to be small at first glance but can in reality amount to a considerable sum over the standard loan repayment period of 10 years.
For example, one popular cosigner loan program grants loans at 4% for borrowers with a good credit history increasing to 6% for those with a poorer but nonetheless good enough record. This 2% variation might not seem like much but can amount to in excess of $5,000 over the life of a loan.
It is not unusual nowadays for a student to require as much as $100,000 to fund an undergraduate education and, even where interest is paid from the outset and is not accumulated, interest at the Stafford loan rate of 6.8% is approximately $567 each month or $6,600 every year. Lowering that interest rate to 5%, which is the present rate for a Perkins loan, reduces these figures to $417 and $4,820 respectively.
It also has to be born in mind that these figures assume that repayment begins straight away. However, it is much more common for students to defer repayment until six months after leaving college and this will increase these figures greatly.
Borrowers who have a cosigner with a superior credit record will not only increase their chances of obtaining a loan in the first place, but they will also reduce their total loan repayment very considerably.
