With the cost of a college education ever on the rise, tens of millions of American students have to find student loans to afford school. For someone without any credit history whatsoever, taking on debt can be especially intimidating. With the prospect of paying off what totals more than $1.5 trillion in total student loan debt, it's not surprising that many students need help from whatever source they can find.
Some lenders won't even consider making certain types of student loans without getting parents or some other responsible party with a longer credit history to cosign with the prospective student borrower. That can be a big problem for students in certain situations, but it doesn't mean that you're completely out of luck. Fortunately, some types of student loans are designed not to require a cosigner at all, and even if you need supplemental financing from sources that might prefer to have a cosigner, there are still some things you can do to improve your chances of getting the loans you need to afford your college education.
Federal Direct student loans: The best for students
As with many things that have to do with student loans, a lot depends on exactly what type of loan you're looking to get. If you qualify for federal Direct student loans, also known as Stafford loans, from the U.S. Department of Education, then you'll typically be able to find a lender to offer you the money you need without a cosigner.
In order to qualify for a Direct loan, a student needs to complete and send in the Free Application for Federal Student Aid, better known as FAFSA. That information helps the federal government figure out how much financial need the student has, which is a key component in determining not only the amount of loans a student qualifies for but also whether the loans will be subsidized or unsubsidized. However, regardless of which type of Direct loan you get, there's typically no credit check, and the quality of the applicant's credit history isn't as important as it is with other types of loans.
Usually, PLUS loans are offered directly to parents, helping them meet whatever contribution requirement they have toward their child's education. However, PLUS loans are also available to graduate and professional students.
Although PLUS loans typically do require a credit check, they're generally available without a cosigner. PLUS loans are another type of federal student loan, and so their terms are more favorable than many private loans. However, there are situations in which you might not be able to get a PLUS loan on your own, such as if you have significant adverse events in your credit history.
Private student loans and cosigners
Once you've exhausted all the federal sources of student loan funding, the rules change significantly. Private student loan lenders are largely free to impose their own borrowing requirements on the student loan process, and the odds are much higher with a private lender that you'll have to find a cosigner in order to convince it to give you a loan.
That said, private lenders understand that most current and prospective college students haven't had much opportunity to build up much of a credit history of their own. If a student has been able to build up at least some positive entries on a credit report, then private lenders are more likely to offer more options than for someone who's had a more questionable credit history experience early in their lives.
However, even for those who are successful in finding a lending institution that will consider offering a student loan without a cosigner, you'll need to plan for potentially higher costs. That's because with private loans, it's entirely up to the lender to decide how to assess the risks involved with extending credit to a student. A common thing to do is to boost the interest rate on the student loan if the student can't find cosigners willing to help out. Conversely, by finding a cosigner, the bank feels more secure about making the loan, and so it's more likely to offer a more competitive interest rate.
How to better your odds of getting a loan with no cosigner
If you want to get a student loan and you don't have a cosigner, then there are things you can do to boost the chances of getting a loan. The following things make it more likely that a private lender will give you better terms on your student loan:
- U.S. citizenship is nearly a must for borrowers trying to get student loans. Lenders aren't as comfortable with foreign students because trying to collect from borrowers who return to their home countries after they graduate and the student loans come due is quite a bit harder than collecting from American students.
- Having a job while you go to school is a valuable way to demonstrate that you have the current income potential to make regular payments on your debt. Even if your loans are structured so that you're not required to make payments as long as you're enrolled in school, lenders still like the financial discipline that working students demonstrate.
- Build a solid credit history. It's possible for young adults to take steps to establish their credit, such as by opening credit card accounts with modest credit limits. Also, if you put your name on a regular monthly bill like a cell phone account, you can demonstrate to a lender that you understand how repayments work.
Finally, even if your lender might not let you get a student loan without a cosigner upfront, they might be willing to let the cosigner off the hook at a future date even before you repay the full amount of the loan. Some student loan providers offer releases for cosigners after anywhere from 12 to 36 months, as long as you've done a good job of staying on top of your student loan and making whatever payments were required on time and in full.
Getting a student loan when you don't have parents or others willing to be cosigners is tough, but it's not impossible. By taking advantage of the different types of loans and working to demonstrate to your lender that you're worthy of a loan without a cosigner, you'll dramatically increase your chances of getting the financing you need.