APR 27, 2011
Who can afford to pay cash for college? Not many of us. That’s why 66 percent of college kids rely on financial aid, and about 40 percent take out student or parental loans to help fund their educations , according the Institute of Education Sciences .
Traditionally, student loans have been among the easiest types of loans to obtain, with the most lenient terms. In the past, you would have to undergo a credit check when applying, but you didn’t need a squeaky clean credit report to get approved. And it wasn’t unusual if you took a decade (or longer) after graduation to repay it.
But like virtually every other aspect of our lives, the financial crisis of the past few years has affected the world of student loans. Standards are tightening and loans are becoming harder to get. Now, in addition to passing a credit check, student loan applicants may be required to submit personal budget plans that illustrate they understand how to manage credit and repay debt.
With total student loan debt approaching the trillion-dollar range and student loan defaults on the rise , many schools and legislators are pushing for stricter standards for student loan applicants. In that atmosphere, a student’s credit report (and those of his parents) is likely to become more important than ever in the loan application process.
With the school year winding down, many of you have already started thinking about how you’ll fund your child’s college education in the fall. Your first step should be to do your own credit check. Obtain your credit report and score. Clean up any errors and take steps to improve your credit standing wherever possible.
Then turn to online resources like SallieMae.com, Finaid.org and studentloans.gov to learn more about what types of loans are available and what you’ll have to do to qualify for them. Also, check out scholarships!
Finally, help your college-age child understand the significance of taking out a student loan. It’s a move that will have long-term financial impact. It can help them pay for the education that will enable them to compete for a better-paying job, but it will also affect their credit history and they will be responsible for future monthly payments. Help your college student understand how credit works and how to use it wisely: it’s a lesson worth learning.