Student loans are meant to help students pursue higher levels of education.
For many people it is hard to get student loans without a cosigner because the banks want reassurance that if the student is unable to pay then the person guaranteeing the loan will be able to pay it off.
According to the Consumer Financial Protection Bureau (CFPB), student loans are the nation’s second-largest consumer debt market. This market includes more than 40 million borrowers who owe more than $1.3 trillion, and that figure grows by thousands of dollars every second.
The vast majority of these borrowers took out federal loans that are backed and guaranteed by the federal government. However, a small segment of borrowers also have private loans which are geared to students who need to borrow more than the federal loan limits allow.
If you’re gearing up for college and don’t have a cosigner, it’s important to know and understand what options are available to you – with or without a cosigner.
This guide was created to explain each of your options, and help you learn how to get a loan you need without a cosigner by your side.
The Scoop on Federal Loans
If you’re hoping to qualify for student loans without a cosigner, the Federal government has your back. Thanks to rules and regulations that govern student loans and protect the rights of individual borrowers, the government affords you special rights:
- You don’t need a credit check to qualify for federal student loans
- You don’t need a cosigner to qualify for federal student loans
- You won’t need to repay your loans until you leave college or drop to part-time
- If you can demonstrate financial need, the government may pay the interest on your loans while you finish school
- You may qualify for special loan forgiveness programs
If you want to borrow money for school without the help of a cosigner, taking out federal loans is likely your smartest move. Not only are federal loans easy to qualify for, but they also tend to offer the lowest interest rates compared to other financing methods, including private loans.
Even among federal student loans, however, there are several types of loans to consider. The short list includes:
- Direct Subsidized Loans – loans made to eligible undergraduate students who demonstrate financial need
- Direct Unsubsidized Loans – loans made to eligible undergraduate, graduate, and professional students without a demonstrated financial need
- Direct PLUS Loans – loans made to graduate or professional students and parents of dependent undergraduate students to help pay for college costs not covered elsewhere
- Direct Consolidation Loans – allow you to combine all of your eligible federal student loans into a single loan with one payment
- The Federal Perkins Loan Program – school-based loan program for undergraduates and graduate students with exceptional financial need
Using a company like SoFi can help you consolidate loans, but there are certain restrictions. While it can definitely save you money in the long run, make sure you understand the difference between the two; something like deferring payments differs widely.
To determine your eligibility for any of these federal student loans, your first step should be filling out a Free Application for Federal Student Aid, or FAFSA form. Taking the time to fill out this long and tedious form carefully is the only way to find out how much federal aid you can qualify for, and if your income is low enough to qualify for subsidized loans.
It’s also important to note that the federal government sets limits on the amount of money you can borrow each year using each type of loan. For example, undergraduate students can borrow up to $5,500 per year in Perkins Loans and $5,500 to $12,500 per year in Direct Subsidized Loans and Direct Unsubsidized Loans. In addition to federal loan limits, the amount you can borrow depends on your income and any other financial aid that may be available to you.
Graduate students, on the other hand, can borrow up to $8,000 each year in Perkins Loans depending on financial need and other financial aid that may be available, plus up to $20,500 each year in Direct Unsubsidized Loans.
While that sounds like a lot of money for college, it’s easy to burn through quickly if you’re attending an expensive school or earning a graduate degree. And once you hit federal loan limits, your only real option is to pay-as-you-go or to get one of the best personal loans for school from a private lender.
Taking Out Private Student Loans without a Cosigner
Since federal student loans are available without a cosigner, they should be your go-to choice when it comes to securing money for college. If you need to borrow money from a private lender, however, you won’t get off that easy.
Since private student loans must be approved by a private bank, qualifying for a private student loan while you are in school can be downright difficult. Not only must you be able to demonstrate the ability to pay off your student loans, but you’ll need to have good or decent credit and be a U.S. citizen to qualify.
Most private lenders also look for an income of $25,000 or greater for new borrowers, which can also make it difficult to qualify for private loans while you’re still in school.
If you hope to qualify for private student loans without a cosigner, these steps can improve your chances.
Step #1: Start earning an income. With a base income of $25,000 considered standard to qualify for private student loans, you’ll need to find a way to earn some money. Getting a summer job can go a long way towards helping you earn income while you’re in school, but working part-time all year long is an even better option.
Step #2: Build your credit. If you haven’t had time to build up your credit profile, now is the time to get started. Most major banks offer student credit cards that can help you build the credit you need to borrow money for school, finance a car, and even buy your first home. The Discover it® for Students credit card is a great option for anyone who wants to build a solid credit history while also earning rewards. Read more about the Discover it® for Students here.
Step #3: Monitor your credit progress. In addition to building credit, you’ll want to go out of your way to nurture the credit history you already have. For most people, that means paying all of their bills on time, keeping debt levels as low as possible, and resolving any old debts that are in default. The Discover it® for Students is also helpful in this respect because it offers a free FICO credit score on your monthly statement, and all without an annual fee.
All of these are also very important when you graduate from college and have to start paying back your student loans. If you have good credit you can refinance your student loans and get lower rates. This can cut years off your payback times.
Strategies for Borrowing Less
While taking out federal loans without a cosigner is usually a breeze, borrowing the money from a private lender requires you to jump through additional hoops. But since you’ll have to pay back the money you borrow either way, the smartest thing you can do is borrow as little as you can get away with.
Here are a few strategies that can lower your debt load and make life easier down the line:
Apply for scholarships and grants. Qualifying for scholarships and grants is the best way to cut down on the amount of money you need to borrow for school. The Federal government offers scholarship and grant information at StudentAid.gov. However, state and institution-based aid may also be available.
Pay as you go to minimize your loans. Having a job while you’re in college is the best way to set yourself up for fewer loans when you graduate. If you can work while you attend school, you may be able to pay some of your college expenses as you go.
Don’t use student loan funds to improve your lifestyle. The best way to minimize your loans is to only borrow what you need. Don’t take advantage of funds that go above and beyond what is absolutely required for school. And if you do end up with extra college money somehow, you should pay that money towards your loan balance immediately.
The Bottom Line
Borrowing money for college without a cosigner is definitely an option, although getting the money you need becomes infinitely harder once you surpass federal loan limits and switch to a private lender. Either way, the best thing you can do for yourself is minimize the amount of money you need to borrow and educate yourself about your loans – and your finances – as much as you can.
The high cost of a college degree has made borrowing money an inevitability for most students, but that doesn’t mean your loans are out of your control. With some careful planning and preparation, you can (hopefully) escape college with student loan debt you can actually afford to repay.