Quite a lot of Americans can admit that they have some bigger or smaller trouble with their finances.
As we know, bad financial situation can influence creditworthiness and our eligibility for loans. You won’t get a loan with 560 credit score. That’s just bad.
Simultaneously, student loans are very popular and there arises a question: can parents’ financial trouble affect their child’s eligibility for a student loan?
Federal student loans have the lowest interest rates and the most flexible terms of repayment. That is why, this loan option is probably the best for young people. The Perkins loan and the Stafford loan are two of the federal student loan types.
The former has fixed interest rates of 5.0% and the latter 6.8%.The eligibility for such loans is based on financial needs (only the unsubsidized Stafford loan is not). The very good news is that parents’ credit history has no influence on their child’s eligibility for these loans.
What is more, the student’s credit history is not taken into consideration as well. It seems to be totally natural, as very young people normally cannot present a very impressive credit history (often they have no credit history at all). Hence, basing student loans on credit history would be without sense. Learn how to build credit on Student Loans Hero.
Initial Stafford loan limit for a student is $5,500. Then, the limit is increased every year and goes up to $7,500 for a college senior. In the case of the Perkins loan the limit comes to $5,500 per year for undergraduate students. But the average Perkins loan amount is about $2,000 per year because of the limits of the funds.
What if the federal student loans are not enough?
Another option for students is the Parent PLUS loan or private student loans. The Parent PLUS loan is also a federal loan, but it is taken by parents for their child. Here the interest rate is 7.9% and the annual limit is calculated based on the full cost of attendance minus other aid which was received by the student. In this case, financial need does not influence the eligibility for the loan. It depends on the borrower’s credit history, though. Therefore, having good financial situation and no derogatory events in credit history turn out to be very important.
Bankruptcy discharge, default determination, foreclosure, repossession, tax lien and wage garnishment are the most harmful marks that can occur in the credit history. On the other hand, the Parent PLUS loans are not depended on credit scores, so even a highest credit score won’t help.
The good news is that if the only reason of ineligibility is a 90-day delinquency, the parent can regain eligibility for a PLUS loan if he or she brings the delinquent account current. It is also possible to qualify for a Parent PLUS loan by having an endorser who will agree to cosign the loan. And of course, there is a condition – the endorser cannot have an adverse credit history.
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