Private Loans with a co-signer with bad credit?

Paying for College
1

<p>I am currently in the process of looking at private loans with my mom who has terrible credit. I was wondering if it would be better to apply for parent PLUS loans with her with the fixed interest rate of 7.9% or apply for a private loan? If she has terrible credit would it be harder to get a private loan? I received the maximum amount of federal sub/unsub loans so now I only need another 11k for my first year. Would it be best to get a private loan or federal parent PLUS loan? </p>

<p><strong><em>I am not sure how loans work because no one in my family has gone to college</em></strong>*</p>

2

<p>Your mother can get PLUS with poor credit as long as she does not have any outstanding bills on her record that are past due or bankruptcies over a period of time. Do call the financial aid office and ask an officer there exactly what the stipulations are for a PLUS, as I am just going from hear/say recall and this is not at all dependable. She can apply for PLUS on line in the privacy of her home online and get an immediate reject or accept and if rejected, I believe she is sent a contact number and can discuss other options or how to clean up her file to get the loan.</p>

<p>Also, if rejected from PLUS, you automatically can borrow another $4K freshman year from the Staffords as an unsubsidized loan at student rates which are 1% lower than the parents’. </p>

<p>Private loans are structured so that those with better credit get better terms. it depends on the lender as to what credit ratings are even being accepted and the terms for such. So you have to shop around, and yes, it can be a pain, because in some cases, you have to pay to apply and see the terms after you apply and the lender eyeballs the credit report. From what I have seen, the loan will want both you and your parent on it as co signers and both will responsible for the loan. You die, your mom is still stuck for paying it , though some lenders are beginning to back off that stance due to some terrible publicity, but then they are charging for life insurance in the cost of the loan. The same, if anything happens to your mother. The loans are reported on both credit reports and the income/loan ratio is affect for both of you. Any late payments and you each get slammed. Any default, they go after both of you. Neither of you can get out of the loan even with bankruptcy. Most private loans, particularly those that give them out to folks with bad credit will have very unflexible terms and will penalize for late fees and any changes in repayment.</p>

<p>The advantage of the PLUS program is that it is more flexible. It has a built in insurance feature, If EITHER you or your parent dies, the loan is forgiven. If circumstance change, the lenders tend to work with you, though that interest rate still keeps on rolling and racking up. The interest rate is just a hair under a whopping 8%, bear in mind. </p>

<p>If there is any way you can work and earn some of the money, or if your mother can come up with some money, starting now, and paying you or the school now, it would really be a better way to go. Your mother is not likely going to be able to pay those loans back if her past and present financial situations have been such that she can’t spare that kind of money. The future tends to be very much determined by what the now and back then are and were. You could be sinking her in terms of opportunities in the future with a bigger loan burden sitting there. And the same for yourself. Some places will simply refuse to hire those students with huge debts. </p>

<p>It’s also a bear to repay. The normal Staffords are tough enough to repay. Mykids are having a tough time making a go of it alone even without loans. Too many kids are under or unemployed, can’t pay their loans and have run out of time. It’s become a huge problems, so that even those whose families are on even keel, should stop and think about taking out these loans. If your parent is already in trouble as your mother is, it is not a good idea to do this. Look for more affordable options. A lot of kids back at home, living with mom because they can’t find a job to make them self subsistent, parents can’t help, and the loans are due. Ironic in that some of those kids took the loans to get away from home at age 18, and now are stuck for years thereafter because of them. It’s worse to be stuck at home AFTER college, than before.</p>

3

<p>*I received the maximum amount of federal sub/unsub loans so now I only need another 11k for my first year. Would it be best to get a private loan or federal parent PLUS loan? *</p>

<p>If your mom has poor credit then she won’t likely get approved for Plus or private. If your mom is denied for Plus, then you’ll get $4k more. That may seem fine, but that means that you’re going to graduate with about $40k+ in fed loans. That’s a LOT!</p>

<p>You’ve been given the max fed loans and yet you naively say, “I only need another $11k for my first year.” That indicates that you don’t understand debt.</p>

<p>Only? You’re trying to borrow too much. You’re going to have way too much debt. You’re going to have about $30k in fed debt and about $45k in private/plus debt (if you get approved). That’s $75k in debt. That is wayyyyyy toooooooo muchhhhh debt. </p>

<p>What is your career goal and how much do you think you’ll be earning upon graduation?</p>

<p>What are your less expensive options? (since it’s unlikely you’re going to get the loans that you need).</p>

4

<p>Do read this about PLUS: <a href=“http://talk.collegeconfidential.com/parents-forum/1498510-read-before-you-take-out-parent-plus-loan.html[/url]”>http://talk.collegeconfidential.com/parents-forum/1498510-read-before-you-take-out-parent-plus-loan.html&lt;/a&gt;&lt;/p&gt;

<p>And private loans can be even worse than this especially when the parent cosigning has bad credit but they will go after YOU as well with the privates. At least with PLUS, just the parent is on the hook.</p>

5

<p>@mom2collegekids You don’t need to be rude. I’m not an idiot I know how debt works. I say only 11k my first year because my second, third, and fourth year is not going to be 11k (which you assumed). Instead of answering my questions, you have chosen to insult my intelligence. I am not here to argue on the internet, but thank you for your time.</p>

<p>@cptofthehouse Thank you! My mom does owe money to a bank, would that affect whether or not the PLUS loan will be rejected? If I were to be rejected for the Parent PLUS loans and since my mother’s credit is poor (meaning I would most likely not receive a private loan), would this then mean I have no other option and force me to choose a cheaper college (I would just switch campuses)?</p>

6

<br>

<br>

<p>What are the loan amounts for the other years?</p>

<p>The reason that I said that you don’t understand debt is because you’re trying to borrow too much. You’re a high school kid. You haven’t been paying for rent, utilities, etc. You have not yet experienced trying to pay for all of living expenses while also trying to pay back large debt. </p>

<p>Anyway, since your mom’s credit is bad, then (thank goodness) you won’t be getting these extra loans. </p>

<p>I’m not being rude. I’m being realistic. Extra loans for college can seem like a dream come true to young people because they’re getting to go to college where they want. And, that’s the main focus right now for many young people. Then the dream becomes a nightmare when the newish grad is trying to pay for rent, utilities, cable, internet, cell phone, food, clothes, car, gas, insurance, etc, while also trying to keep up with very large loan payments. </p>

<p>I’m glad to hear that you have a cheaper campus option. Look into that.</p>

7

<p>It’s not whether she owes, but whether she is late on her payments. It’s not the credit rating at PLUS, from what I understand, but whether an account has a payment that is either 60 or 90 days over due. It would be smart for her to get her credit report, Transunion, I believe, but do ask at the financial aid office first, which one is used and what specifically Sallie Mae looks for in a denial, and then if there is no bankruptcy, if the past due amounts are taken care of, she should be okay. When denied, there is a process to work it out, as well, but you might as know up front what they look for.</p>

<p>When going with private lenders, they can use any info they please, and it can vary. To a certain point, they will zing the borrowers with interest rate, terms, fees, but they can also just say “forget it” if the credit is worse than what they have to deal with. If you get a copy of the report, a loan officer may be able to go over it with your mother and you and let you know what on there are the sticking points, another good reason to get one and look it over. Otherwise, you have to apply, often pay for the credit check and the app fee, only to get denied. </p>

<p>Please do not feel that we are denigrating you in pointing out the pitfalls of borrowing when already behind the financial 8 ball. Those of us, and Mom2collegekids is one of us, have been seeing families and kids, year in and year out, borrowing when they should not be and getting themselves in a lot of trouble. I’ve listed and directed you to some of the issues to keep in mind. It’s a scary problem for both parents and college students. Unmanageable debt for college is not worth it. It can hamper job opportunities that you are trying to enhance and optimize with the time and money you and your parents are putting into your education, and it too often backfires.</p>

<p>College costs tend to go UP each year. They have even in the years when most everything else, including pay was going down. So, it’s highly likely that next year, your costs will rise. And the way it works, even at top schools, is that they expect the students to take on even more of the cost, I</p>

<p>I don’t know what kind of windfall you are expecting to get in future years, to make up for this gap that is likely going to get wider. In these posts, a lot of times, our tones are not evident, and I am sure that Mom2coll’s was that of concern, not trying to be rude here. You did say that “I am not sure how loans work because no one in my family has gone to college” in your OP, which you then directly contradict with “I’m not an idiot I know how debt works”. </p>

<p>I’m trying to give you the information that is out there and how things work so that as adults, you and your mother can make the decision on your own, but, yes, there are warnings that come with it, because these debts can be very dangerous, and you yourself have made it clear that you don’t know how loans work, and your mother has clearly had problems with debt having a poor credit history/report right now. We want you to make an informed decision with as much info as we can give you pertaining to loans, and a lot of that info has warnings because these students/parent loans are rapidly becoming a major problem to many.</p>

8

<p>Why did you write the following if you know how debt works:</p>

<p>*<strong><em>I am not sure how loans work because no one in my family has gone to college</em></strong>**</p>

<p>And if you won’t have to borrow an add’l $11k for each of the following years, then how will you cover those shortfalls?</p>

9

<p>@cptofthehouse I will ask my mother to process a credit check. If I were to be rejected from any possible loans I do have the option of attending a satellite campus which would be about 14k a year if I were to commute. What I received in grants would cover about 10.8k which would then require me to find 3.2k in loans, which is much more manageable I most admit. However my visits to these satellite campuses gives off a terrible vibe. I have applied to Sallie mae, but have not received an answer yet. My question is now if I were to be rejected from Parent PLUS and private loaners, would I have absolutely no other options to find places to receive loans?</p>

10

<p>“Absolutely no other options” is really dead end, so I have to say, “no”. But the way it works is that the government does guarantee loans for education which is why private lenders get into the market. These loans, unlike other loans cannot be discharged under bankruptcy, and there are a lot of venues that are available, like going right for a government check like social security, to get payment. So it comes down to how much of a premium these banks can charge and still make money off of these loans, in case such measures are needed, and what these loans are worth on the open market. So that’ why these loans are around anyways. Actually, Sallie Mae has loans that you can take with a cosigner as well, and perhaps they will take you and your mother together if not your mother alone, and that might be a less arduous way to go then having to shop the banks and other lenders. I don’t know much of that part of Sallie Mae, so I’ll have to leave you on that subject.</p>

<p>Also, if you mother is rejected by PLUS, if she can get a cosigner that passes the no outstanding bills beyond a certain date for the PLUS, she can pass go, and collect the loan. The cosigner would have to get a PIN, but not endure a FAFSA or too much more than agreeing to a credit check and MPN. However, he will be responsible for the loan if your mother does not pay on it, and so he has to have that faith that she will pay. Also that loan amount will be on his credit report as an outstanding amount owed and could be an issue for future loans such a person might want to take, like a car loan, a mortgage, etc. But that is another option.</p>

<p>Also, can your mother borrow from any 401K, home equity,car loan, other credit sources? With bad credit, an unsecured loan is not going to be a go, most likely so anyone who is denied for a school loan backed by the government is highly unlikely to get past the credit check that is more strenuous. But certain secured loans, might be possible, at a premium based on the credit score. </p>

<p>Considering how much trouble there is in getting repayment from so many of these defaulted student loans even with the extra provisions and federal backing, it is highly unlikely that there are other venues other than the loan sharks, pawn shops, etc in terms of getting loans and I don’t even want to think about what they want for collateral. Considering even secured loans, like mortgages have been going belly up, the market for loans is very tight out there, even with the low interest rates. </p>

<p>I notice you say you have applied to Sallie Mae? is that one of those cosigned loans I am referring to in this post where both you and your mother sign? PLUS gives an instant answer. She might want to apply now just to see what it is. You don’t have to go forth with the loan if approved, as it might be too early right now for next year’s loan apps.</p>

11

<p>@cptofthehouse “But the way it works is that the government does guarantee loans for education” Does this apply to parent PLUS loan? I may be just misunderstanding, but you could still be rejected from parent PLUS correct? If my mother does get rejected from parent PLUS and you recommend for my mother to get a cosigner so that means I would need a cosigner (mom) with another cosigner (whoever it may be)? I was going to apply to parent PLUS loan but I had an error where I entered my SSN in the student section but I get an error that states that the SSN cannot be the same as a borrower (but shouldn’t it be the same since I am the student and the one borrowing the money?</p>

12

<p>For a PLUS loan your mother is borrowing the money, not you. That is why you are getting that error. </p>

<p>It is HER responsibility to pay it back, not yours. And the payments begin immediately - not when you graduate.</p>

13

<p>For Plus loan, payments do not begin immediately, you are deferred while you are in school. But the interest is accruing, so it is advisable to pay at least the interest to avoid a larger loan amount when you graduate.</p>

14

<p>@Iron Maiden, so how would I go about applying for one? My mom wouldn’t have an account since she is not a student. How do I get it so that it is my mom being the borrower and not me?</p>

<p>@co4usc2016 thank you :)</p>

15

<p>Your mother has a FAFSA PIN does she not from when she completed the FAFSA? That is all she needs along with her SSN and other basic info such as name, address, phone number and two references not living with her (their names, addresses and phone numbers). That will do it for the PLUS. PLUS is a loan ONLY your mother will apply for, and if denied, you automatically can get $4K more for the Stafford unsub loan. She can then find out why she was denied and appeal for reconsideration or get a guarantor with decent credit to back her up. YOU cannot be the cosigner or guarantor on PLUS. The rate for plus is about 8% interest and starts up as soon as the funds are released to the school. You get half released each term for schools on a 2 semester year. There is an origination fee. Repayment can start right away or as late as 6 months after you graduate. And, yes, this loan is backed by the government, but yes, a person can be rejected for it. It is not a guarantee, and you cannot be currently late on your bills (60-90 days) to be accepted. No income or credit score required, and you have to be a parent of the child. If parent or child dies the loan is forgiven. But,no, the student is not involved in this loan.</p>

<p>The other type of Sally Mae loan is the kind offered by banks and requires the student to find a credit worthy cosigner. That would be the one that you AND your mother could apply together I don’t know much about those loans. The cosigner in that case does not have to be a parent, but the terms of the loan and approval can depend on the credit worthiness of the co signer. The interest rates offered vary in this loan, depending some on choice/terms and some on the credit histories. The rates can go up to nearly 12% from what I have seen.</p>

16

<p>Thanks to everyone who have answered my question! After discussion with my mom and looking at all my options, I have two choices.</p>

<p>1) Attend the main campus for all four years. This will require me to take out about 47k in loans total for all four years, whether it be federal or private. </p>

<p>2) Attend an alternate campus my first two years, which I will be able to pay out of pocket due to the federal/state grants that I was offered. Then attend the main campus for my last two years. This will require me to take out about 14k in loans for my last two years.</p>

<p>The question for me is which I value the most the college experience or how much I take out in loans. May seems obvious that the latter is the most important, however, due to my experiences and lack of opportunities where I live, it is more of an internal conflict. If I have any more questions I will just update here. Thank you for all the help!</p>

17

<p>The other question in all of this is how difficult it will be for you and your mother to repay those loans. I have one kid living at home, another living hand to mouth and still another doing well pay wise, but not exactly living high on the hog. None of them have loans, and we, the parents, help out as well, and it’s still a tough go for them. Finding affordable, housing, transportation, making ends meet is not easy. Finding a good paying job is not easy. Doing these things with the Sallie Mae monkey on your back makes it all the more difficult. It’s ironic how some kids are so hot to away from home, and then end up back there after college because they can’t afford to live on their own and loans can be a big issue. </p>

<p>My son in college now watches his budget and money carefully and he gets upset as to how difficult it is to get ahead. He ended up losing out last year, when his reasonably high paid job had to be given up due to some medical/dental issues that cropped up and a course that became more trouble and difficult than anticipated. Then an offer to go on a great trip to Europe with all but pocket money and basic transportation costs, covered with some friends came up. But that meant losing several weeks of summer work, when the coffers were already lower than planned. He’s still trying to make up for those setbacks from last year, and not quite there. </p>

<p>He’s renting a place off campus that is a lot cheaper than the dorms, but it’s for 12 months, not 9 and there are utilities he will have to pay and the place needs furnishing and house wares. It’s also a bit further from classes than the university housing. It’s not going to end up much of a savings unless he really focuses on cutting the food bill to the quick, something I am showing him how to do here at home. But it takes, time, planning and discipline. </p>

<p>One year of a loan, already $300 in interest. $300!!! He was horrified. For a $5500 student loan. He might just pay it all back out of his investment account where he has his saving, but he is doing well with the market right now. He has about $7K in there as his saving over his lifetime, some of which he puts towards school each year as part of the deal. He’s paid back $2000K of his loan , and it’s slow going to come up with another $1K this summer. So into the savings he’ll go. And he’s probably going to make $12K this year, meaning he will have to pay taxes. Trying to get ahead is not easy.</p>

18

<p>Sure enough I have another question. If I were to sign the MPN now for the sub and unsub loans, would I be able to cancel it before school starts if I were to switch campuses? Or is it that once I signed the MPN i am unable to cancel it?</p>

19

<p>Yes, you can cancel it. It gets paid out by semester so if you are not in the school when the semester starts it won’t be paid. In that case make sure you notify the FA office you will be attending a different school. Some paperwork SNAFUs do happen.</p>