Many times, students have 2 or fewer credit cards and no automobile loans, and there is even less of a chance of students ever having a home mortgage. As a result, they have little or no credit score at all. Often times our students have made bad decisions in the past with their credit. They might end up with a balance on their credit card that they cannot repay with minimum payments.

No credit at all or a history of non payments or judgements will put the applicant into a higher risk category with lenders. Loan officers including those from federal student loan programs will be cautious about this being in your credit history. Loan applications can be denied, or in borderline cases a higher interest rate is allowcated to offset the risk and compensate for higher default rates.

Applicants with no credit history or bad credit can and should obtain a co-signer. In the general case that will be one or both parents. Different factors, like the parent's FICO score, their debt to income ratio, and payment history are taken into consideration when lenders are deciding to grant a loan. Now, it is up to the parents credit for deciding what the interest percentages will be. Those with a superior credit score typically get the best rates, while those with lower FICO scores usually pay a higher rate.

A popular student loan plan reports that with an interest amount of 4% it will cost $5,489 in interest and at 6% it rises to $10,647. 2 percent doesn't sound like a lot until you figure how much it will actually cost you over the length of the loan.

Normally up to $100,000 is borrowed for an undergraduate education by parents and students themselves. Even if interest is paid right away (so it does not accumulate while the student is in school, adding to the total to be repaid), interest at 6.8% is almost $567 per month. The annual amount you will pay for interest would be almost sixty-six hundred dollars.

Reducing that interest rate to 5% (the official amount for a need-based Perkins loans) reduces those numbers to $417 and $4,820. Keep in mind that this example is based on the payments being made while the student is in college. By waiting until you are out of college for six months to make repayments, which is common practice, will cause your amounts to be much higher if the interest rate was not deferred or subsidized.

Over the length of the loan, a co-signer can help to lower your overall amounts paid in interest by getting a lower interest rate than you would have gotten on your own. Consider playing with the numbers with one of the many online loan calculators. The information detail above will form a significant part of any student loan consolidation information.