A range of general student loan products are not credit-based, Stafford and Perkins are based solely on need and do not even perform credit checks, but not all students will qualify and these services will in many instances cover a reduce amount of less than 100% of the amount needed, especially given the high cost of education today, most students and his or her families may therefore need to supplement these with credit-based student loans, when they do being able to show a good credit report to evaluators will result in the best access to funds, with the better interest rates, as with any credit-based loans a prior history of bad credit does not make acquiring funds impossible, nevertheless it is often much harder and in many instances carries a higher interest rate, avoiding a bad credit history will hence be the difference between getting a loan or if you do obtain one, repaying much more than you would have with a good credit rating.
However what is good or bad credit?
The first issue any loan officer will examine is the FICO score, the FICO is a total score calculated by the main credit agencies based on a secret proprietary formula, though the exact equation is not public, multiple criteria are well known and even obvious.
FICO scores are calculated on outstanding debt and defaults, the amount of late re-payments and how late and how late they are 30 days, 60 days, 90 days or longer along with the amount of credit available and number of recent credit inquiries and other factors, all these are weighed up and thus for example, a default counts very heavily as do any late payments with higher late days counting more, the number of recent credit inquiries counts much less.
A range of students will not have a FICO amount at all, not having credit cards or other forms of loans that would generate the required information on which the amount is based, nevertheless most students are judged by their parents credit history in relation to granting loans, whilst student credit history is important it is the parents wages and credit history that typically counts for more in the final decision.
Both parties want to have good credit, first and foremost that requires a FICO of above 650, and the higher the better having a total score less than that will not make getting a loan impossible, nonetheless it might trigger the need to supply further information that may influence the decision and submitting that incidental data to the people who can be influenced is not always easy.
In addition to the FICO number and linked to it, there are a number of other components that prospective borrowers should keep in mind.
Paying when required is imperative, evidence of a history of late payments and building up late re-payment charges is evidence of a poor credit risk in the minds of the lenders, staying within your available credit limits is very important as well, avoiding over limit and other costs shows a disposition to defer current gratification and take responsibility, creditors are judging not just numbers but also character as well in any decision.
Limiting the number and maximum balance amounts on credit cards will additionally assist, excessive credit inquiries suggest to lenders that someone is having difficulty meeting existing debt loads, that is a signal that re-payment of further loans may be harder, that increases the lenders default rates on loans that are not re-paid, financial institutions will try very hard to keep that default rate as low as possible, to do that they sometimes deny credit to borderline applications.
Meet all of your credit obligations and keeping all borrowing to a modest level for a long period of time makes you look like a very good risk to loan officers, which means funding any student loan will be that much easier, keep this in mind when considering any student loan consolidation information.
Having a bad credit history is under no circumstances an advantage, luckily for students and his or her parents there are many loans and aid packages that don not look at credit status at all, considerable Federal loans look at only need or other components and ignore any credit history entirely either helpful or bad credit history.
Pell Grants are one of the oldest and disbursing these is based mainly on the economic status of the grantee, if the student and their parents are a reduced-wages family, Pell Grants are almost always automatic, nevertheless as with any system of Federal aid that economic circumstance must be demonstrated by supplying documentation and information, those in charge of disbursing Pell Grants apply a number know as the EFC (Expected Family Contribution), to decide whether to offer the dollars or not, other elements additionally come into play such as the overall cost of tuition and education.
The grant is a gift and not a loan and is currently a maximum of $4,050.00 per financial year, that could seem like a considerable sum and it decidedly assists a good deal of students, nonetheless with annual tuition upwards of $5,000.00 to $10,000.00 or more it does not cover all expenses.
A large majority of students, therefore may need to look for a loan in addition to a Pell Grant to fund their education, there are a range of loans that are need-based, one of the better general loans is a Stafford Loan, which comes in two products.
The first style of Stafford Loan and the most desirable is known as a subsidized loan, the term comes from the fact that the government pays any interest that accrues during the time the loan is not being repaid, that time is generally whilst the student is carrying a half-time or greater burden of classes and for the first six months following leaving school.
The next type of Stafford Loan is the unsubsidized loan, in which the student is responsible for any interest on the principle, if paid in installments whilst participating in classes it could be modest, a $4,000.00 loan paid over 120 months carries a monthly re-payment of $42.43 @ a 5% interest rate, the interest portion is roughly $9.00 per month, if it accrues unpaid over numerous years, it may add a large amount to the total re-payment after graduation with any unpaid amounts gets added to the principle and the rate then being applied to the total amount.
The benefit however of the second style is that they're nearly always available to any student, in the large majority of cases they will not cover more than approximately 25% to 40% of the costs of tuition, so students may need to supplement the loan with other sources of money, limits variety from $3,500.00 as of July 1, 2007 in the initially year, rising to $5,500.00 for the 3rd year and 4th years for dependent undergraduate students and independent students are able to borrow up to $10,500.00 per year, graduate students could possibly borrow up to $20,500.00 as of July 1, 2007, with a total of $138,500.00 over the lifetime of the students education.
Perkins Loans are the other type of no credit necessary student loan with a reduced interest rate loan currently @ 5%, it lets dependent undergraduate students borrow up to $4,000.00 with a cap of $20,000.00, it's important to keep this information in mind when considering any student loan consolidation information.