Help! Parents Have Bad Credit–Can Our Daughter Still Get a College Loan?

Question: My daughter just graduated from high school and needs a loan for college. My husband and I have horrible credit and cannot get a loan. Can she get one?

Assuming that your daughter can’t find an adult co-signer with good credit (grandparent, aunt, uncle, etc.), she should talk to a financial aid officer at the college she will attend and explain her situation. (If she’s reluctant, assure her that financial aid staff members are used to dealing with families in all sorts of predicaments, so she should feel comfortable explaining her own.) She will probably be told that you and your husband will have to apply for a PLUS loan. Then, when you are turned down for the loan (which sounds likely, based on what you’ve just said about your credit), your daughter can get a Federal Stafford loan .

I consulted a former college financial-aid honcho before responding to your query to get the latest figures (as of June 2009). She said that as a freshman, your daughter should be able to borrow up to $5500. If your income is low enough, the first $3500 will be “subsidized.” The remaining $2000 is “unsubsidized” If you have been denied a PLUS loan, she can get an additional unsubsidized $4000. (Loans are either “subsidized,” meaning that the government pays the interest while the student is in school, or “unsubsidized,” meaning that the student must pay all the interest, although the payments can be deferred until after graduation.) The rate on the subsidized loans will go down to 5.6% on July 1, 2009, but the unsubsidized portion will still carry a fixed rate of 6.8%.

The financial aid officer at your daughter’s college can give her more information about how to proceed. Note, however, that these loans are only for US citizens or Permanent Residents. So, hopefully, your daughter is not an international student.