Getting approved can feel good, but getting denied for a private student loan brings out the opposite side of the emotional spectrum; it feels bad.
When it comes to loans for education, the emotions can run high, especially when gaining access to the school of your choice depends on funding resources.
The following is an honest review of the options people have should they be denied the loan they need.
There is only so much credit that an 18-22 year old can possibly have given the limited amount of time they have been an adult. With lenders becoming more restrictive in lending practices, it has become less common to see traditional undergraduate students get approved for a private student loan without a qualified cosigner. The duties of cosigner usually go to the parents first, but many parents overextended with debt or suddenly unemployed during this recession have been unable to successfully cosign.
Students have turned to other people to cosign, like grandparents, aunts, uncles, and close family friends when the parents can’t do it. However, this can be a tricky proposition as the cosigner assumes responsibility of that debt liability until it is repaid in full. If something were to happen to the borrower and they were unable to pay the loan back, the entire debt moves to the cosigner, and student loans are not dischargeable in bankruptcy. Cosigners place great trust in the borrower to handle loan repayment, but beyond that there are two ways to help deal with the risk for a non-parent cosigner (or any cosigner for that matter).
First, a private student loan consolidation can release a cosigner from a debt obligation. A student may have had insufficient credit as a college freshman, but by graduation their credit may have greatly improved. This may allow for a consolidation loan approval without a cosigner (or using a different cosigner), releasing the liability of the former cosigners to the old loan applications.
Second, a common sense financial planning approach may include a life insurance policy on the student that would protect the cosigner if heaven forbid the student were to pass on. This is a new phenomenon in response to increasing private student loan balances for students and their cosigners as rates for life insurance are very low for young people.
When was the last time you looked at your credit report? If it has been a while, you may be in for a surprise when you finally take a look at it. Information on a credit report may be very inaccurate. This is especially true for cosigners that have had a long history of credit. For example, a credit card balance transfer from Visa to Discover may show up on the credit report as balances outstanding for each card in error. Credit can be adversely affected in such cases, and requires that the consumer take charge in correcting it.
If denied for a loan, take a good look at the credit report and look for errors. Correct them by sending a letter to the reporting agency detailing the circumstances and clarifying the correct data. Read up on what to do on the Federal Trade Commission’s page “How to Dispute Credit Report Errors”.
As offered through the Direct Loans program, the Parent Plus loan is a quality option. They follow a less stringent review of credit than private student loans, and really only look for any delinquencies of 90 days or greater on the credit report before approval is confirmed. It’s all in the parent’s name, not requiring the student to sign on for this loan. Many borrowers are also comfortable with the fixed rate. However, it is a very high fixed rate at 6.84%, and there are no reductions or advantages for people with good credit, it’s the same rate for everybody. But it may be the only option to help get a student the funding they need, and is very much worth a look.
Maybe you have tried different lenders and different co-borrowers but still cannot get approved for the loan you need. If you are in this situation, do not freak out. Instead, acknowledge that this school is simply too costly and out of reach financially. If attendance to a particular school is completely dependent on financing, and you are unable to gain that financing, then you need to move on to a more affordable option. You should already have a short list of back-up schools that you can attend.
A common strategy is to attend a community college for two years, and based on performance, consider transferring to a four years school to graduate from, cutting costs nearly in half. This is a more financially feasible route for many students, as attending a very expensive school as a freshman may backfire if unable to get approved for the loans needed to finish all four (or maybe five) years.