No Credit Student Loans – Real or Ripoff?
No Credit Student Loans
Pell Grants are one of the oldest, and disbursing them is based primarily on the economic status of the grantee. Pell Grants are almost automatic for low income and some “credit challenged” students or their parents. Almost being the catch word. As with any form of Federal aid, that economic situation has to be demonstrated through supplying the proper documentation.
Those in charge of disbursing Pell Grants use a number, called EFC (Expected Family Contribution), to decide whether or not to provide the financial aid. Other determining factors also come into play (such as the cost of tuition and more).
The grant is a gift, not a loan and is currently a maximum of $4,050 per year. That may seem like a substantial sum, and it certainly helps a great deal. But with annual tuition upwards of $5,000-$10,000 or more it doesn’t cover everything.
Most students, therefore, will want to seek a Federal student loan in addition to a Pell Grant to fund their education. Careful research will turn up “need based” loans. One of the most common are Stafford Loans, which come in two types.
The first type of Stafford Loan, and the most desirable, is called ‘subsidized’. The term comes from the fact that the government pays any interest that accrues during the period the loan is not being repaid. That period is typically while the student is carrying a half-time or greater load of classes, and for the first six months after leaving school.
The second type is ‘unsubsidized’ in which the student is responsible for any interest on the outstanding principle. If paid in installments while attending classes, it may be modest. A $4,000 loan paid over 120 months carries a monthly payment of $42.43 at a 5% interest rate. The interest portion is roughly $9 per month. If it accrues unpaid over several years, though, it can add a substantial amount to the total repayment after graduation. Any unpaid amount gets added to the prinicple, with the interest rate applied to the total.
The advantage, however, of the second type is that they are almost always available to any student. In most cases, they won’t cover more than about 25%-40% of the total costs, so students will need to supplement the loan with other sources of funds.
Limits range from $2,625 ($3,500 starting July 1, 2007) the first year, rising to $5,500 for the 3rd and 4th years, for dependent undergraduate students. Independent students can borrow up to $10,500 per year. Graduate students may borrow up to $18,500 ($20,500 starting July 1, 2007), with a total of $138,500 over the lifetime of the education.
Perkins Loans are another type of ‘no credit required’ student loan. A low interest rate loan (currently 5%), it allows dependent undergraduate students to borrow up to $4,000, with a cap of $20,000 total. Details are available at: http://studentaid.ed.gov/students/publications/student_guide/2005-2006/english/types-perkinsandstaffordloans.htm.
So you see, all hope is not lost if you or your parents have a bad credit history and need a loan. Those with low income or bad credit can find a student loan to go to College on! It just takes a little more effort is all.
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