Exploring Alternatives When You Don't Have a Parent Co-Signer
Look into your options when you don't have a co-signer
When you have exhausted scholarship and grant financial aid, given all you can from cash and savings, and reached your limit with work-study and Federal Direct Student Loans, you may turn to Private Student Loans. But there is a catch. The majority of Private Student Loans require a co-signer. So, what are your options if your parents will not be a co-signer so you can be approved for a Private Student Loan?
Look for someone else to be a co-signer
Although the vast majority of Private Student Loan co-signers are parents according to the Consumer Financial Protection Bureau (CFPB) and the Department of Education, borrowers also have other relatives as co-signers. So, your next best bet is to start talking with other relatives about helping you to apply for a loan. Grandparents are the next largest group of Private Student Loan co-signers, followed by other relatives.
If you don’t have any relatives who can co-sign, the next option you need to consider is a long-time friend who has a positive credit history. When asking friends, ensure you focus on people that you intend to keep in touch for the life of the student loan and feel comfortable having financial conversations with them. Learn more about the Attributes of a Good Private Student Loan Co-signer in out blog post.
Build your own credit
Most college students have little to no credit in their own name. If you have time before you enroll in college, consider building your own positive credit history. Just know that credit histories don’t happen overnight. According to Barry Paperno, a credit score expert, “The minimum amount of credit history needed to generate a [credit] score is six months or more on at least one credit account.” That still does not mean that you have much of a history nor have a high credit score, even if you were responsibly paying the credit every month on-time. If you want to take this longer path, consider getting a secured credit card, a limited credit card that requires the user to place a refundable security deposit or tie the credit card to bank account as collateral to ensure payment. Another way to establish credit is to become an authorized user on joint credit card account.
Ask the financial aid office for help
It’s always worth reaching back out to your college one more time to discuss your options. Some college have limited institutional loans that require no co-signer and often have similar terms and conditions to the Federal Direct Student Loan such as grace periods, low interest rates, and deferment options. Other colleges may suggest that your circumstances warrant the use of professional judgement to either qualify you for more scholarship and grant money or create eligibility for the additional $4,000 in unsubsidized Federal Direct Student Loan for your first or second year as an undergraduate or $5,000 for your third or fourth year. These options may not be possible at every college, but it’s always worth asking.
Defer going to the college
Although this is not a popular path, some students elect to request to defer admission. If you need more time to find a co-signer or plan to work and save more money to go to college, explore taking a gap year. As long as you stay focused on your goal of attending college, you can maximize your earnings potential during the gap year and reach a greater “ownership” of your education. There is a lot to consider when considering a deferment or admission. Check out this article in the Princeton Review about deferrals. Just be certain to check with the college ahead of time about whether or not they will defer your scholarships and grants and what the process will be to reapply for the funding.
Transfer to a more affordable school
Sometimes educational pathways are not straight. Consider attending a lower cost, local community college or public university and then transferring to that college that is costing too much to attend right now. The average tuition and fees at a community college is $3,660 versus $10,230 at a public university according to the College Board. You may be able to pay less now and transfer later to the more expensive college in the future. Just ensure that you key an eye on what classes credit will be transferrable to college you have your heart set on.
Colleen MacDonald Krumwiede is a financial aid and paying for college expert with over a decade of financial aid experience at Stanford GSB, Caltech, and Pomona College and another decade at educational finance and technology companies servicing higher education. She guides go-to-market strategy and product development at Quatromoney to transform the way families afford college.