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If you have bad credit, you are not alone. According to Experian, one of the three major credit bureaus, 16% of Americans have a “bad” credit score, ranging from 300 to 579. If you are one of the millions of people in this category and have children college, you may think you are not eligible for financial aid because of your credit.
However, it can still be beneficial to apply for Parent PLUS loans, even if you think your credit isn’t good enough, to ensure your child gets all the college help they deserve.
Can I get a Parent PLUS loan with bad credit?
Federal parent PLUS loans are becoming more common. In 2022, 3.6 million people had parent PLUS loans outstanding, up from 3.1 million in 2014. Despite their popularity, it’s important to know that PLUS loans work differently than other federal student loans. While federal loans for undergraduates do not require a credit check, PLUS loans do.
Your parent PLUS loan application will be denied if you have an adverse credit history. However, you may still qualify for federal student loans even if you have a low credit score.
When it comes to federal financial aid, the term “adverse credit history” has a specific definition. Rather than referring to your credit score, a bad credit history means you have one of the following on your credit reports:
- You have one or more debt accounts with an outstanding balance greater than $2,085 that are 90 days or more past due, have been placed in collection, or charged off within the past two years
- In the past five years, you have experienced one or more of the following:
- loan default
- Remission of debts in the event of bankruptcy
- Foreclosure or repossession
- Tax privilege
- Payday entry
- Federal Student Aid Debt Cancellation
Adverse credit history is different from having bad credit or no credit. Unlike private student lenders, which typically have minimum credit score requirements, you may qualify for federal aid with less than perfect credit. For example, if you have no credit history or have poor credit due to high credit utilization or multiple new credit applications, you may still be eligible for a Parent PLUS loan. .
How to get a parent PLUS if you don’t qualify
Although the credit requirements for PLUS parent loans are less stringent than those of private student lenders, your application may be denied due to your adverse credit history. However, there are steps you can take to qualify for a PLUS loan.
Get an endorser
One way to get a parent PLUS loan is to add an endorser to your application. An endorser functions as a loan co-signer; that is, someone with a strong credit history who agrees to repay the loan if you cannot make your payments.
An endorser can be a family member or close friend, but cannot be the child in whose name you are borrowing.
If there are extenuating circumstances related to your adverse credit history, you may file an appeal and provide documentation to potentially qualify for a PLUS loan.
However, acceptable call scenarios are limited. In general, extenuating circumstances refer to situations where you are no longer legally responsible for past debts, an error has been made in your credit report, or an outstanding debt has been repaid. The following are examples of extenuating circumstances and supporting documents:
- Overdue account or collection account: A divorce decree that shows the borrower is not responsible for the account.
- Well taken: Documentation from the lender that shows the debt has been paid in full.
- The foreclosure process has begun: Finalized, signed and notarized loan modification agreement and proof of payment.
The Ministry of Education will review your documentation and decide whether or not to approve your appeal. If you meet the conditions, you may qualify for a loan, but you will need to follow PLUS credit counseling.
You can start the appeal process for PLUS Loans on line.
Ask another parent to apply
If you have a bad credit history, you can ask another relative to apply for a PLUS loan instead. To qualify for a PLUS loan, you must be the student’s biological or adoptive parent. In some cases, in-laws are also eligible.
For example, if you are divorced and your application for a PLUS loan is refused, you can ask your ex-spouse to apply for a PLUS loan for your child.
Apply for a Parent PLUS loan, even if you will be refused
If you know you have a bad credit history, applying for a PLUS parent loan is probably worth it.
If your application is denied, your child may be eligible for additional Federal Direct Loans, allowing them to take out low-interest loans to cover the cost of their education. For example, a first-year dependent student would generally qualify for up to $5,500 in direct federal loans. However, if the student’s parents are not eligible for PLUS loans, the student can borrow up to $9,500.
Depending on your child’s college, they may also be eligible for additional help, such as institutional grants or loan programs for students with financial need. After receiving a PLUS application denial, contact the school’s financial aid office to discuss available options.
Even if you don’t think you qualify for Parent PLUS Loans, consider applying for them each year so your child is considered for the maximum amount of financial assistance available.
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