What credit rating do you need to get a student loan?
SAN JOSE, California, 20 october 2020 / PRNewswire / – According to most recent college board data, the average annual tuition fees for public academic institutions in the state in 2019-2020 were $ 10,440. Annual private college tuition fees were more than three times higher at $ 36,880. Not many of us have enough leeway in our budgets to cover these kinds of costs out of pocket. So unless you’re lucky enough to win a lot of scholarships and grants, you will likely need to take out at least a few student loans to help pay for your college education. The following is what you need to know about your credit and student loans, from myFICO.
For more information on loans and credit, visit the myFICO blog at https://www.myfico.com/credit-education/blog.
With most types of loans, you must have good credit to get loan approval or get the best rates. But do student loans work the same? If so, this could be a problem for students, many of whom are just beginning their credit journey.
Do you need a good FICO® score to get approved for a student loan? And is it possible to get a student loan if you have a limited credit history or not at all? We will take a look.
What credit rating do you need to get a student loan?
The minimum credit score you will need to get a student loan will depend heavily on the type of loan you are applying for. Below, we break down the credit requirements for three of the most popular types of student loans.
Subsidized and Non-Directly Subsidized Student Loans
Students with poor credit records or damaged credit will be happy to learn that there is no minimum credit score for both subsidized and non-subsidized student loans. In fact, you won’t even need to have your credit checked during the loan application process.
Despite having no minimum credit requirements, these loans come with low fixed interest rates of 2.75% for undergraduates and 4.30% for graduates (graduate students can only take out unsubsidized loans). Borrowers also pay a commission of 1.062% which is subtracted from their loan disbursement.
In addition to the absence of credit rating requirements and low rates, both subsidized and unsubsidized direct loans come with other federal benefits. For example, borrowers can:
Learn more about subsidized and unsubsidized student loans at StudentAid.gov.
Direct PLUS student loans
While both subsidized and non-subsidized direct loans offer attractive rates and terms, they also come with annual and lifetime borrowing limits. And if you’ve already hit your funding limit, you’ll need to consider other loan options.
If you are a parent or graduate student, Direct PLUS loans (parent loan for undergraduates) might be a smart choice. With Parent PLUS and Grad PLUS loans, you can receive up to the full participation fee. Interest rates and fees are slightly higher, but you can still get federal benefits like IDR (income based reimbursement) and PSLF (Public Service Loan Pardon).
What is an adverse credit history?
With PLUS loans, your interest rate is not based on credit. All approved borrowers receive the same fixed rate of 5.30%. But you won’t be able to borrow if you have a adverse credit history. Here is how it is defined:
- Have one or more receivables with a combined total outstanding balance greater than $ 2,085 that are 90 days or more past due or that have been placed in the collection or charged (written off) during the two preceding years; OR
- During the past five years, you have been subjected to:
- Determination of faults,
- Bankruptcy Debt Relief
- Tax privilege
- Wage garnishment
- Write-off of a federal student assistance debt
As long as neither of these situations applies to you, you may be eligible for a PLUS loan regardless of your specific FICO® score. And even if you have an adverse credit history, you can still receive a PLUS loan by adding a solvent co-signer or provide documentation on extenuating circumstances.
Private student loans
If you have reached your borrowing limits on both subsidized and unsubsidized loans and you are not eligible for a PLUS loan (that is, you are not a parent or graduate student), you may need to apply for a student loan from a private lender. .
And it is in this situation that your credit becomes more important. With private loans, your credit will be verified. And your credit score will play an important role in the eligibility of your loan and the rate of interest you receive.
If you have a FICO® score equal to or above the “Good” range (670 and above), you may be eligible for a private student loan on your own. Otherwise, you will probably need to add a creditworthiness co-signer to your loan application.
The impact of taking out student loans on your credit
While a credit score may not be required to qualify for some student loans, all student loans will count towards FICO® scores once reported to credit bureaus. All federal loan managers are required to report borrower payment activities to the three major credit bureaus.
Once your repayment begins, it’s important to stay up to date with your student loan payments to prevent late payments or a default from being added to your credit report. Before you fall behind, make sure you’ve explored all of your backup options first.
For federal student loan borrowers, you may be eligible for federal forbearance or stay. Or maybe joining an Income Based Repayment Plan (IDR) could make your payments more manageable.
For federal student loan borrowers in default, the CARES Student Loans Act might help you remove the default from your credit report. Through December 2020, each month’s suspended payments are considered Payments towards the nine who must rehabilitate a federal loan.
myFICO makes it easier to understand your credit with FICO® Scores, credit reports and alerts from the 3 bureaus. myFICO is the consumer division of FICO – get your FICO scores from the people who do the FICO scores. For more information visit https://www.myfico.com.