No-Credit Student Loans

March 23, 2009 by  
Filed under Student Loans

Having poor credit history is never a good thing. Luckily for students and their parents, there are still some student loan and aid packages that do not take credit status into consideration. In fact, some federal student loans are purely need-based and do not look at credit history at all.

One of the oldest of these is Pell Grants, which focuses mostly on the student’s economic status. If the student stems from a family with low income, Pell Grants will almost instantly hand out the student loan. However, this low income must be proven with proper documentation, of course.

Those who grant student loans at Pell Grants use the Expected Family Contribution (EFC) number to conclude if the student loan should be granted, though the cost of the tuition itself may also play a factor.

Pell Grants are more of a gift than a student loan, really, and is given at $4,050 per year, at most. This may seem like a decent amount, but it does help greatly. However, if the annual tuition needed is more than $10,000, it definitely will not pay for a lot.

Because of this, the majority of students try to seek more student loans for their education, on top of the student loan granted by Pell Grant. A lot of other student loan programs are also based on needs, such as the Stafford student loan, which is available in two forms.

Subsidized Stafford student loans are those that are most wanted. With this student loan, the government will pay for any interest accumulated while the student loan is not yet being repaid, which is usually while the student has classes until half a year after graduation.

With unsubsidized Stafford student loans, it is the student who has to pay for the accumulated interest. This may turn out to be an acceptable amount if paid in installments while classes are being taken. In a span of 3 years, a $4,000 student loan would require a monthly payment of $42.43 at a 5% interest rate; that’s around $9 of interest per month. If this goes on for several years, it could grow to a much bigger amount by the time graduation occurs.

The good thing about unsubsidized student loans, however, is that anyone can avail of these student loans. Mostly, student loan programs will not pay for more than 40% of the total costs, though, so students will have to find other source of funds to pay off the student loan.