In this popular e-newsletter feature, we take a look at what might be a complex college admissions or financial aid question or situation that we've recently encountered that has made us take a moment to think about the correct response. What would your response be?
Situation: A student has received a financial aid award letter from their college of choice. There is a $10,000 gap the family needs to cover. The student comes to you with concerns that their parents (who are married) don't think they can co-sign a loan since mom is currently in default of her own federal student loan and has very poor credit.
What options are appropriate for you to offer?
- Suggest a private student loan in the student's name without a co-signer.
- Suggest dad apply for either a private loan or federal PLUS loan since his credit is separate from mom (even though they are married) and he may qualify for the loan.
- Suggest that mom apply for a federal PLUS loan and get denied (due to being in default of her own student loan) and then the student can access $4,000 more of their own Federal Direct Student Loan.
- Suggest a payment plan that allows the family to make interest free payments to the college (typically over 4 to 10 payments throughout the year) instead of financing the gap.
- Suggest they ask a family member, other than the parents, if he or she would be willing to cosign on a private student loan.
- F. Answers B-E.
Correct Answer- F
Certainly, all is not lost for this student; there are still avenues to pursue. First, let's look at why answer A won't work. In order to borrow from a private lender, students need a viable co-signer unless they have approximately $30,000 in annual income and a credit score of 675 or greater. Therefore, most high school seniors will need a cosigner in order to secure a private loan.
Now let's look at the other options for the student that could help to pay for the gap. In answer B, it is important to remember that even though a couple is married, they have individual credit scores. It is absolutely possible for one parent to have had a bankruptcy or be in default while the other parent remains a viable cosigner for a loan.
In answer C, mom can apply and get denied for a PLUS loan which will allow the student to get $4,000 additional funds in their own student loan. But remember, they would still need $6,000 more in this scenario, so that could open up answer D in combination. The family could then look at a tuition payment plan to pay the rest of the balance. Lastly, in answer E, the family could approach a credit-worthy family or friend someone else to be a viable cosigner for the student.
If you think you have a student who could benefit from exploring all their options, have them make a FREE funding options appointment with one of our college counselors. We are happy to brainstorm options with them. If you would like further clarification on the response, please call us at 888.747.2382, ext. 119.