My 17-year-old daughter is eager to begin college. We have some
difficult financial situations to contend with and could use your
advice and direction. Her dad and I are divorced. I have poor credit
due to excessive debt, and late payments. I am considering a debt
settlement plan right now on two of my debts. I have outstanding
student loans, and my ex does as well. He is unemployed, and has been
for almost two years now but he has good credit (I think!) Because of his
unemployment and my financial hardship, both our student loans are in
forbearance now. Neither of us can afford to help very much with
college expenses. How will our situations affect her ability to get a
loan with either/both of us as cosigners?
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Federal student loans are the best option, because they have the
lowest interest rates and the most flexible repayment terms. Federal
student loans include the Perkins loan and the Stafford loan, which
have fixed interest rates of 5.0% and 6.8%, respectively. A lower
interest rate may be available on the subsidized version of the
Stafford loan, which is awarded based on financial need. The Perkins
loan is also awarded based on financial need. Eligibility for the
unsubsidized Stafford loan is not based on financial need.
Eligibility for federal student loans does not depend on the parent's
credit history. These loans don't even depend on the student's credit
(Most students who enter college immediately after high school have
thin or non-existent credit histories, so few would qualify if
eligibility for the loans were based on the student's credit
history. The government's goal in providing low-cost student loans
without regard to the student's credit history is to enable students
to enroll in and graduate from college without regard to ability to
pay. So long as the student graduates and doesn't borrow too much debt
for the degree and major, the student should be able to repay the
federal student loans after graduation.)
Dependent students are eligible for up to $5,500 in Stafford loans as
college freshmen. The annual loan limits increase with each year in
school, reaching up to $7,500 as a college senior. The annual limit
on the Perkins loan is $5,500 per year for undergraduate
students. However, the average Perkins loan amount is about $2,000 per
year since the loan funds are limited.
If federal student loans do not provide enough funding, the main
alternatives are Parent PLUS loans and private student loans.
The Parent PLUS loan is a federal loan borrowed by parents of
undergraduate students. It has a 7.9% interest rate. The annual loan
limit on the Parent PLUS loan is up to the full cost of attendance,
reduced by the amount of other aid received. Eligibility for the
Parent PLUS does not depend on financial need.
However, eligibility for the Parent PLUS loan does depend on the
borrower's credit history. The borrower of a Parent PLUS loan must not
have an adverse credit history. If the borrower has had certain
derogatory events in their credit history during the last five years
or currently has a delinquency of 90 or more days on any debt, the
borrower will not qualify for a Parent PLUS loan. The derogatory
events include bankruptcy discharge, default determination,
foreclosure, repossession, tax lien and wage garnishment. The Parent
PLUS loan does not depend on credit scores. If a 90-day delinquency is
the only reason why a parent is ineligible for the Parent PLUS loan,
it is possible for the parent to regain eligibility for the PLUS loan
by bringing the delinquent account current. A parent could also
qualify for a Parent PLUS loan by having an endorser cosign the
loan. The endorser must not have an adverse credit history.