Private student loans, offered by banks, credit unions, and other financial institutions, have their own unique application requirements. Many of them require a strong credit history or, at minimum, a reliable cosigner with good credit. If you have a limited or poor credit history, or don’t have a cosigner who meets these credit standards, qualifying for a typical private student loan may be difficult.
Conversely, federal student loans are accessible to both undergraduate and graduate students without imposing income stipulations and typically do not necessitate a credit assessment or cosigner. These federal loans are open to all qualifying borrowers without discrimination.
Learn More about Federal Student Loans
Importance of Cosigner and Credit History
Private student loans are an option when you need additional funding outside of the federal funds that are available to you. However, it’s important to realize that obtaining a student loan can be challenging to say the least without a strong credit score and history and even more so, without a creditworthy cosigner to assure the lender that the loan will be repaid on time and in full.
A cosigner is someone who agrees to repay the loan and becomes legally obligated to repay the loan if you are unable to do so and one with a healthy credit score will give lenders the assurance, they can repay the loan. Both cosigners and credit history help lenders feel more comfortable lending out money as the risk will appear minimized and this will increase your chances of a loan approval.
Problems Obtaining Private Student Loans
If you find yourself in the pursuit of a private student loan but are hindered by a lack of credit history or a cosigner, the path forward can seem daunting. Financial institutions are often hesitant to extend loans to students who haven't yet established a reliable financial history or who lack the assurance of repayment through a cosigner.
For those students determined to finance their education independently but are faced with the obstacle of not having a cosigner, the quest can become particularly challenging. The roadblock of not having a credit history or a cosigner frequently appears insurmountable, potentially leaving students feeling discouraged and uncertain about their options for covering college expenses.
Steps to Take Before Applying for Private Student Loans Without a Cosigner and Credit History
Assessing Needs and Calculating Cost
As college is a big investment, it's important to prepare to apply for private student loans (especially if you do not have a cosigner or credit history) by accurately assessing the total cost of your education. This includes the following:
- Tuition
- Fees
- Books
- Equipment
- Transportation
- Other incidental expenses related to college
Check with your school’s financial aid office for the cost of attendance (COA) to get an idea how much money you will need to borrow. It’s also a good idea to only borrow what you need.
Be sure to factor in additional costs such as interest rates and fees associated with your loan when calculating the amount of money you will need to borrow from private lenders. By understanding the total cost of your education, you can ensure you have enough money to get through college successful without over-burdening yourself with debt.
Managing Financial Goals
Managing your expenses and establishing financial goals can help ensure that you are able to stay on top of your payments without overspending. Some important actions to help you reach your financial goals may include:
- Creating a timeframe of when you plan on paying off your loan
- Establishing an emergency fund to help you stay on top of your payment
- Setting spending limits on food and entertainment
- Using a budgeting app or spreadsheet to track your expenses
- Creating and sticking to a budget
- Being accountable for payments
- Avoiding late fees
Taking the time to educate yourself and create a budget will help you prepare to be a good borrower. While borrowing money can be stressful, you can take steps to help you manage the financial demands of college.
Researching and Comparing Private Student Loan Options
If you are preparing to apply for a private student loan without a cosigner and credit history, it is essential to research and compare your loan options. Shopping around for the best available rates can help ensure that you get the most affordable loan possible, especially if you don’t have a strong credit score. It can also be helpful to research various lenders to find if there are special discounts of other perks available such as a repayment reward program.
You should also research the conditions of each loan to ensure you understand all fees, prepayment penalties, or late payment charges that may be available. Understand that is it important to remember that different loan terms may fit different budgets and to consider all relevant information before you make a final decision.
Private student loans can offer both an in-school repayment option (meaning you are required to make payments while you are in school), or deferred repayment option (meaning that you can defer your payments while in school at least half-time but know that during this time interest will be accruing on your loan).
Non-traditional Ways to Pay for College
After you have exhausted all forms of free financial aid, such as grants, scholarships, or other forms of financial aid that may be offered by organizations in your community or local government and if you know you cannot qualify for a private student loan on your own and don’t have a consigner, you may want to look at some different ways to pay for college.
There may be alternative loan programs from employers or financial institutions. Income-based student loan repayment plans, crowdfunding, and Direct PLUS loans for parents as other options for you to take advantage of.
Income Share Agreements (ISAs) are an alternative way to pay for college that may be worth considering if you are unable to find a cosigner and are lacking credit history. An ISA is an agreement which you receive upfront money from an investor or group of investors in exchange for a percentage of your future earnings over a set period of time.
Before committing to an ISA, carefully consider the full terms of the contract and understand how much money you will owe each month over the course of repayment period and any applicable fees.
Tips for Getting Approved
Building Credit History
Having a strong credit history is often essential for becoming approved for private student loans, especially if you do not have a creditworthy cosigner. If you are just starting to build your credit history, you may consider opening a secured credit card with a small spending limit and make regular, on time payments.
You can also boost your credit by having your parents add you as an authorized user to their existing accounts. Their good credit can rub off on you! There are also programs that report rent or utility payments to the major credit bureaus, like Experian Boost™ reporting service. Make sure to regularly check your credit report to allow you to address any errors or discrepancies that may arise. Building credit history doesn’t happen overnight, but making smart decisions now can help you to responsibly establish your own credit history.
Searching for Lenders That Offer Private Student Loans
It may be difficult to find financial lenders who offer private student loans to students without a cosigner or credit history. You can try researching the major banks and traditional financial institutions in your area. Ask to speak with their loan officers to ask if there are any programs that might suit your needs. If there aren’t any, look into online-only lenders who often have less stringent requirements than traditional financial institutions.
You can also consider options such as ISAs which usually require no cosigner but may cost more than loans from traditional banks and finance companies.
Cosigner Release Options
Finding a cosigner can be challenging, so you may want to search out lenders that offer cosigner release options. This option allows the primary borrower of a private student loan to have their cosigner removed from the loan agreement. It is typically available with some lenders under certain conditions such as having a certain length of credit history and income or making on-time payments for a specific amount of time. The potential for a cosigner release can be attractive if you don’t have the necessary qualifications for obtaining a loan on your own.
Alternative Options for Financing College
It's no surprise that going to college can be an expensive endeavor and private loans are a means to pay after you have exhausted all your other financial options. Before diving into the world of private student loans, make sure you have applied for as much federal student aid as possible, and are continually applying for scholarships, and works-study programs.
Federal Student Aid
Applying for federal student aid is often the first choice for many students when they need to finance their education as it typically comes with more benefits and fewer risks than private student loans. With federal student aid, undergraduate borrowers can be eligible for subsidized loans, where the Department of Education (i.e. the federal government) will pay your interest on the loan while you are in school at least half-time. Federal loans are backed by the government and offer a wider variety of repayment plans than private student loans.
Scholarships, Grants, and Work-Study Programs
If you would prefer to try to pay for your schooling without taking on a loan, many students turn to scholarships, grants, and work-study programs. Scholarships and grants typically do not require you to repay the money you receive and can help reduce or eliminate the need for student loans.
Work-study programs are another option that offer part-time employment while attending school with the potential to earn money to pay down tuition costs.
It's important to know that scholarships, grants, and work-study programs may have competitive application processes and may not cover the full cost of tuition or living expenses. Private student loans may be easier to qualify for, but you should carefully research the terms and conditions to ensure you can meet the repayment requirements and borrow smartly.
