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Why A Good Credit Score Is Required For a School Loan

Updated on January 14, 2015

College Fees Requirements for Stage college, Top Universities, & Private College


These days sending your kids to a good 4 year college means spending 30 - 45k thousands per year on college fees, tuition, lodging and boarding. I am not counting personal expenses that will vary from student to student. Just to get idea I have given a comparison of state, public and private university giving details on yearly college fees requirements.

1. University of California (Berkeley):

  • Location: Berkeley, CA
  • Type: Public
  • Student Strength: Undergrad (close to 25000)
  • In-State Tuition: $12, 972
  • Out-of-State Tuition: $35,850
  • Rom & board: $15,438

2. California Polytechnic State University

  • Location: San Luis Obispo, CA
  • Type: Public
  • Student Strength: Undergrad (18,735)
  • In-State Tuition: $8, 918
  • Out-of-State Tuition: $20,079
  • Rom & board: $11,447

3. Stanford University

  • Location: Stanford, CA
  • Type: Private, Non-Profit
  • Student Strength: Undergrad (7,065)
  • In-State Tuition: $44,184
  • Out-of-State Tuition: $44,184
  • Rom & board: $13,631

As you can see from the above comparison the amount of money required to complete a 4 year college degree from a reputed state university is minimum $100,000. Of course you do have option of completing first 2 years from a community college and then taking a transfer to university. You also have an option to going to other state universities, which charge 6k to 10k per year for college fees. However the talking point in this post is college fees required for good state, public and private colleges.

Very few parents in America will have that amount of money saved for college fees. Hence parents depend upon the federal and state scholarships, grants and need based loans. Fortunately, some federal programs don't require your credit score to accept and evaluate your loan application. These loan programs are given to applicants based on their needs. The questions become tricky when parents don’t get enough funding for school fees from federal programs and are forced to look for additional funding from the private lenders.

Now there are many options to get student loans. Of course it depends upon your family income and in what tax bracket you file your taxes. In addition to federal, state and private school loans , there are some charities which offer student loan or grants to deserving and need based students.

Now the question is 'how do you qualify for Federal Student Loans' and do they use credit scores to evaluate student loan application? Let's understand what types of Federal programs are available for student loans and what are the required requirements. The student loan program come in many packages some from government and state initiated programs and some from variety of private lenders.

Federal Student Loan Program: There are several types of education loan programs available for which students may be eligible. The Stafford and Perkins loans are federal governed loan programs. These two programs directly give loan to the student. Both Stafford and Perkins loans are funded by government and thus carry low interest rates and have very consumer favorable loan repayment plans. The federal loans are savior for lower middle segment people who otherwise can't afford to send their children to the colleges they want.

Federal Student Loan Programs

The money for Stafford loan program comes from a federal government program called FDSLP, the acronym stands for Federal Direct Student Loan Program. The Stafford loan to student is provided under two categories, subsidized and unsubsidized. The difference is in the interest rate on loan under each of these subsidized programs and the loan cap they carry.

Subsidized Stafford Loans: The beauty of subsidized Stafford loan program is that you won't make any payments until you graduate. The interest rate on subsidized loan are very low. The government will pay for your interest while you are in school finishing your school term. This type of loan program is reserved for students who can furnish proof for family hardship. The families which earn less than 50k or 60 k usually qualify for this loan program. This loan program doesn't use credit score to evaluate loan application. For more information on Stafford loan program , visit Federal Student Aid.


Unsubsidized Stafford Loans:
There are two difference between unsubsidized and subsidized Stafford loan. First the interest rate on the loan is not free while you are in school, actually it gets accumulated into your loan. The loan payments get deferred till you graduate. The interest rates are fixed and current rate is around 6.8%. The unsubsidized Stafford loan program is open to every student regardless of their family economic condition. For more information on Stafford loan program , visit Federal Student Aid.

Federal Perkins Loans:- The Perkins loans are available through federally funded loan program. The Perkins loan is low interest loan available to both undergrad and grad students with exceptional financial requirements. Most of the student like Perkins loan program over the Stafford loan program because of its low interest rate and favorable consumer terms. Here is the brief snapshot of Perkins loan program.

Overview of Federal Perkins Loan

  • Loan program is available to undergraduate, graduate, and professional students with exceptional financial need.
  • The loan program carries low interest rate (5%)
  • Important thing to check with you school, if they participate in Federal Perkins loan program
  • School act as lender and you will make payments to your school.
  • Funds availability is need basis.
  • Perkins loans are subsidizes
  • The government pays any interest accrued while you’re in school and even you get short grace period after you graduate.
  • Perkins loans are popular because of favorable terms
  • The cap limit for undergrad is around 30k and for grad is 60k.
  • No credit check or credit score evaluation is done for loan application.


For more information on Perkins loan program visit Student Financial Aid.

Federal Plus Loans:- The PLUS loans are federal loans that are available to graduate students and to parents of dependent undergraduate students. This is US government program and they make direct loans to eligible borrowers through the participating schools.

  • The U.S. Department of Education is the lender.
  • The borrower must not have an adverse credit history. so not your credit score but your credit history is important such as any missed payments over 90 days. The other things which matter are bankruptcy discharge, repossession, tax lien, foreclosure, wage garnishment etc.
  • The maximum loan amount is the student’s cost of attendance (determined by the school) minus any other financial aid received.
  • They have a fixed interest rate of 7.9 percent.

For more information and checklist for Direct Plus Loans, Visit Student Financial Aid


Private School Loans

Private School Loans:- Why do Private Student Loans use Credit Scores? Lenders in business of lending educational loans use credit score to determine the creditworthiness of a loan applicant. The credit score helps lenders understand and determine the risk level each applicant carries and how likely or unlikely he or she will default on a given loan. Now, if you are planning to take loan from a private lenders, then it is important you browse through your credit report and check for any errors it might have. Sometime by removing errors your credit score can jump few points. Additional you can look into the ways to improve your credit score before you actually apply for a student loan.

The educational lenders provide loan under various interest rate program. The best loans may comer only 20% of loan applicant with good credit scores. The more lower credit score the more interest higher interest rates. One can easily conclude that there will be difference of 2 o to 3% interest rate between the low credit score and good credit score loan applicants. It is advisable to check your credit report early on and look for errors and ways to improve your credit score. You don't have to spend money to get your credit report, the Annual Credit Report provides you one free copy of your report for each of three credit bureaus. Visit Annual Credit Report.


Free Credit Resource information

Annual Credit Report website provides free credit report to consumers. This is mandated under federal law that credit bureaus should provide once a year a free copy of credit report to consumers. The three credit bureaus Experian, Equifax and Transunion collectively created Annual Credit Report portal for consumers to access their credit report. Please remember , it is only once you get free credit report. Also you do not get credit score from Annual Credit report for that you have to visit each credit bureau to get your credit score.

Please note to get your free credit report you don't have to pay any charges and be aware of any site charging you for your free credit reports. In case you have exhausted your free option to get credit reports than next option is to visit individual credit bureaus to get your credit report and credit score. Additionally you can get 3 bureau credit report and 3-1 credit score from any of the credit bureaus for a $20-$30 charge.

Credit Bureau Details





Parent Resources for College Bound Student

1. Fastweb.com– A site for parents to look for in-depth information

2. Zinch.com– Connect with colleges, and search for scholarships.

3. Cappex.com–A college search and match site.

4. MeritAid.com– Find merit scholarships and academic scholarships from colleges across the country.

5. ParentsCountdowntoCollegeCoach.comInformation on college guidance, and planning.

6. USNews.com/Education–The education channel of U.S. News and World Reports.

7. Fafsa.ed.gov–The official government website for the Free Application for Federal Student Aid.

8. CommonApp.org–The common application site for applying to private colleges.

9. PrincetonReview.com–The best reviews

10. SallieMae.com/plan– Get information on college cost and planning.

11. CollegeBoard.com– Register for the SAT, and read articles about college planning.

12. VolunteerMatch.org–Find local volunteer opportunities for your college-bound teen.

13. BigFuture.collegeboard.org–A planning tool to help parents and students.

Please note the above list is not a final list, you should search and look for scholarship opportunities in your area. Some local schools, charities, unions and private foundations also provide small scholarships to deserving and need based students.

Additionally you should also visit colleges or university official website and search for tuition aid web page, many colleges also provide tuition aid to deserving and need based students.


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