No Credit Student Loans: Can You Do Better?
If you have a poor credit history, you should consider non credit based student loans as a possible option for you. There are a number of loan packages available to parents and students that don’t even look at credit status. Several federal loans only look at need or other factors and completely ignore credit history altogether. One of these non credit based student loans is the Pell Grant. These loans are among the oldest type of financial aid. Pell grants are disbursed based on the financial need of the recipient. If both student and parents are low income, Pell Grants can be given almost automatically. I say “almost” because if you are in this situation, you’ll still need to prove it with documentation.
Pell Grants are disbursed based upon something called an Expected Family Contribution, or EFC. Your EFC determines whether or not you can get a Pell grant and how much you are given. Other factors such as cost of tuition also come into play. Unlike loan-based financial aid, the grant is a gift, not a loan. You are not expected to repay these grants. This type of financial aid provides substantial help toward tuition, even if it doesn’t cover everything. Most students, however, will still need some type of other financial aid in addition to the Pell Grant.
Many other non credit based student loans are need-based, too. One of the most common of these is the Stafford loan. There are two types of Stafford loans. The first type of Stafford loan and the one you want to get if you can is called a “subsidized” loan. This means that the government pays any interest that accrues during the time you are in school and not repaying the loan. Students usually must carry a half-time or greater load of classes. This period of non-repayment extends for the first six months after students leave school as well.
The second type of Stafford loan is unsubsidized. What this means is that the student is responsible for interest on outstanding principle from the start. For example, a $4000 loan paid over 120 months’ time means payments are $42.43 a month at 5% interest. Interest accrues at roughly nine dollars per month on that loan amount. However, if it accrues and is not paid over several years, it can make the total repayment jump substantially after graduation. Any unpaid amount is added to the principle and interest is applied to the total, which continues to accrue. What is advantageous about the unsubsidized Stafford loan is that just about anybody can get one. They generally will cover 25 to 40% of total costs, which means students will still need to supplement even this loan with other sources of funds.
Stafford loan limits range from $2625, or $3500 beginning July 1, 2007, for the first year. The limit rises to $5,500 in the third and fourth years, if undergraduate students are dependent. If students are independent, they can borrow up to $10,500 per year. Graduate students can borrow up to $18,500 per year, or $20,500 per year starting July 1, 2007. Total amounts are limited to $138,500 for the course of education. Finally, Perkins loans are another type of non credit based student loans that students can apply for. Interest rates are currently at 5%, but vary each year. These loans allow dependent undergraduates to increase their loan amount to $4000. They can borrow up to $20,000 total. For more options in college financing, check out non credit based student loans.
