Student Loans and the Effects of Poor Credit Ratings

Applying for student loans is a process that can frustrate. There are several considerations made by financial institutions prior to accepting a student loan application. One of the major requirements is having a credit rating that is between good and excellent. Anything less and the chances start reducing significantly and this does not bode well for a student needing a loan to continue studying. This article will pinpoint the effects of bad credit on a student loan application.

Private Loans

The chances of receiving acceptance for a student loan from a private institution are reduced with a poor credit rating. Most financial institutions will take a glance at one’s credit standing prior to making any decision related to student loan applications. There is a process in place that has to be followed at all times and this is apparent at private institutions.

A suggestion that is made to students is to go through federal resources in a bid to receive acceptance. Most government loan applications are approved for students looking to receive immediate acceptance. The only concern that can arise is for students with a past history of not paying off student loans. This can have a direct impact on both public and private institutions.

Student loans for people with bad credit will always be difficult to acquire and this point is amplified in a private setting. Yet, with a government agency, the chances of getting a loan tend to increase. Not only do the chances increase, better interest rates are offered and there is more flexibility involved in the process. These are advantages that should be pondered over by any student including those with good ratings.

Focus on Improvement

Bad credit ratings are a fact of life and it can become difficult to avoid them after they are established. To receive loans with bad credit might seem a tough ask, but it is possible through displaying signs of improvement over a certain period. If the institution is able to pinpoint areas that are showing development and progress towards becoming better, they will be more willing to accept the application.

How does one make improvements to their credit rating? The simple solution is to start paying off outstanding amounts on time. This can do a lot for one’s credit rating and prove to financial institutions that you are on the right track and will pay back their loan on time. This is the only concern for financial institutions to deliberate over because it is their money that is on the line. A student that is not less likely to pay back the amount will always be scrutinized.

Collateral

This is an effect associated with bad credit because students are forced into a tight situation. Collateral can be a solution to one’s issues related to completing their student application in a manner that is effective. What is the concept of using collateral? It is the idea of placing something of value as a means to acquire a loan. If the financial institution does not trust one’s ability to pay back the loan, they will know they have a valuable item to make money from (i.e. home, car).

Bad credit student loans are all about establishing some form of security for the institution one is applying to for a loan. There are other solutions related to the loan process and many students decide to sell their valuables and make money in that manner. It is a decision that has to be made on a personal level and well before engaging in the loan process.

Needing a Co-signer

This can be an effect of having a bad credit rating. Student loans for people with bad credit ratings can be difficult to acquire and it becomes pertinent to attach a trustable name to the process. This can come in the form of a parent or guardian that has a good credit rating and are willing to sign along with you for the loan.

The concept behind having a co-signer is straightforward; the bank will place the responsibility on the co-signer, if the student does not pay back the loan on time. The co-signer will be asked to provide their entire financial history in support of being able to pay back the loan. This is a ‘safety net’ for institutions to know they will not lose their money in the end.

It is important to remember the requirement for full disclosure when it comes to student loan applications. All details have to be revealed otherwise the loan will become void and create trouble down the road for all parties involved. Financial institutions are thorough when it comes to assessment processes and will scour through the details in order to find anything that is amiss. It is important not to get suckered into loan-shark companies that will extract information and your identity.

Strategic Educational Funding for the Next Generation

For anyone who hopes to maintain at least a middle-class lifestyle a degree from a higher education institution has become a must. As parents and grandparents we want to see children succeed but may worry how the education will be funded and by whom. As the cost of obtaining a degree has become higher, those who have the means to, oftentimes take the initiative to help pay for education. Whether it’s parents or grandparents, there are many ways to help save and pay for education and those thinking about it should be aware of the different options available to them. The most common approaches include 529 plans, custodial accounts, direct gifting to the individual, and direct gifting to an educational institution.

529 Plans

A 529 plan is an education savings plan where the investment grows tax-deferred and distributions used for qualified post-secondary education are free of federal tax. This type of savings plan allows the owner to easily change the beneficiary and investments as they choose and provides a variety of funding options. In addition to this, 34 states give the 529 owner at least a partial tax deduction for all contributions made to the plan. The owner can contribute to a 529 plan as a gift without incurring penalties by taking advantage of annual federal gifting limits. One of the advantages of these plans includes the fact that 529s can be funded with 5 years’ worth of future nontaxable gifts. While contributions to a 529 are a completed gift (and hence remove the funds from an estate), the owner has access to the funds but any withdrawals will be subject to a tax and a 10% penalty on earnings if the money is not used to pay for education. Those who purchase these plans should also be aware that many plans tend to have high fees and limited investment options.

Custodial Accounts

Another way to consider paying for college is through a Custodial Account (UTMA/UGMA). This account is similar to an individual investment account but gifts made to it are held in trust until the child reaches the age of trust determination (age 18 or 21 depending on the type of account and state in which it is held). There are several drawbacks associated with this type of account. The assets in a custodial account are considered as the students’ and may count against them if they apply for college financial aid. Investment income generated by the custodial account must be reported on the child’s tax return and is taxed at the parents’ rate. And finally, it’s most important to consider that the funds in a custodial account are irrevocable and once the child reaches adulthood, they are free to spend the funds as they choose.

Direct Payments

As of 2014, federal gifting rules allow a parent or grandparent to make a direct gift of up to $14,000 per year to anyone without paying gift taxes on it. This amount will not be deducted from the lifetime federal gift and estate tax exclusion and one can make as many gifts of $14,000 or less as a person deems fit. Married couples can give $28,000 per recipient without any gift tax ramifications, though they must report to the IRS that they have combined gifts. If however, funds are paid directly to a qualified educational institution, there is no limit to the amount a person can give. This type of direct payment will incur no gift tax and nothing will be deducted from an exclusion amount but this applies only for the part of the gift paid directly to the institution. If the gifter also wishes to cover other costs such as books or room and board that must be paid separately, a regular gift must be made to meet these costs.

Best Strategies for Young Parents

For Parents, savings strategies must fit the family and the finances. The downside to contributing a monetary gift in the form of a custodial account is that anything in the account will belong to the child upon entering adulthood; therefore it is important for young parents to consider how the child might use the money when he or she comes of age. For this reason, a 529 might be a better choice for a parent to put into place now for a young child’s educational savings plan. Investing in a 529 will allow parents to deduct money from their estate tax free and it better ensures that the money will be used to finance education.

However, if the grandparents of the child might help finance a future education, it might be in the best interest of all parties involved for parents to simply open a joint separate account where money intended for education can be earmarked. Then if the grandparents help out financially the money saved is for other priorities. Direct gifting to the child can be made to finance other college expenses such as books or room and board.

These are a few ways a parent might approach saving for education while keeping their budget and growing family in mind.

1. Consider starting with a monthly savings amount you can afford today and continue as your family grows.
2. When looking at 529s, you might start by taking a look at the New York and Utah plans since they have the lowest fees and most investment options.
3. Most of the 529 plans will allow you to set up an automatic payment to help with your budget.
4. If using UTMA, try to request a set age of 21 for the receiver, it will automatically default to 18 if not.

Best Strategies for Grandparents

Regardless of the method a person chooses to employ, there are non-financial issues to consider. Is college right for the child? Will giving a gift to a child 10-15 years from now still be desirable as well? While it is admirable to give the gift of education to grandchildren, one should also consider the unintended consequences of promising to pay for grandchildren’s education. If a promise has been made to pay for education, is this giving a signal to the parents that they don’t need to save for their children’s education? Since they know this major expense will be covered, will this be creating a sense of entitlement or inhibiting their motivation to succeed?

Recent reports have found that 80% of millionaires are first generation (not inheritors), and that many millionaires tend to live beneath their means while their inheriting children are more likely to spend more than they earn and not save. Many who inherit considerable wealth lack discipline if they were brought up in too nice of an environment. Rather than allowing young parents to believe they don’t have to save for their child’s college expenses due to an expected educational gift, it is highly recommended to set aside money and pay it directly to the institution when the grandchild reaches college age. This way there are no expectations by the parents and they have time to set aside money of their own for the same purpose.

Here are a few ways a grandparent might approach paying for their grandchildren’s education without making promises that can have detrimental effects.

1. Don’t make specific promises to your adult children regarding funding your grandchildren’s college education. Instead, perhaps tell them you hope to help when the time comes.
2. Offer to match college savings your children set aside.
3. Talk about your strategy for saving and paying for college when your children were young.
4. Talk to your grandchildren about why you have chosen to pay for school. Discuss both the financial and educational value reasons.

Student Loan Debt and Why It Sucks

As a senior in high school I had no idea what I wanted to be when I grew up. I wanted to go to a huge party school about 45 minutes from home. That was my dream. I wanted to be in their marching band. I couldn’t wait to party in the dorms, meet older guys, and do whatever the hell I wanted without my parents ever finding out. I would stay up late, get good grades, and hopefully one day figure out what I wanted to do with my life. Then, reality kicked in.

My mom wouldn’t let me go because she wanted me to live at home. In all honesty, she was probably right. I wasn’t ready for college yet. Little did I know, staying at home was the worst decision of my life.

I ended up going to a 4 year institution about 10 minutes from my parents house. I lived at home, attended college full time, and worked part time. I seemed to be managing well. My grades weren’t the best, but I wasn’t putting much effort into it either. I was more interested in this guy I was talking to, and making sure other girls weren’t hitting on him, than actually studying and getting good grades. I started with a major in pre-business. It’s not the Information Technology degree I wanted, but it was the closest thing they had besides going into programming, something I knew I would hate. By the mid point in the semester, I had a few good grades with the exception of 1 F. However, I convinced myself that I just wasn’t doing a good enough job, so I met with the Registrar and withdrew. To this day, I don’t understand why that man didn’t push me to stay in classes. To this day, I don’t know why I so easily was able to withdraw from school and walk away with an entire semester worth of debt and books I had barely used. Why was it that the Registrar signed off so easily? At the time, I had my mind set on withdrawing. However, if I would have been pushed a bit harder to stay in class, I would have. And I would have made A’s and B’s, except for my 1 F.

My parents were furious with me when they found out I withdrew, a few days later. I was embarrassed to tell them, because I knew it wasn’t the right choice, but it was too late to change my mind. After a few weeks of me being upset and my parents not happy with me, my dad and I decided I would attend the local community college. At the time, this school was basically the “13th grade”. You only went there if you either didn’t get accepted into a 4 year school, or you wanted a quick degree to just get a job as soon as you could. My mom was completely against this idea, she wanted me to go to a 4 year school, not some lame community college. Even though I made a huge mistake by withdrawing from my 1st school, attending the community college changed me for the better. My parents had lost their store the year prior, and were barely scraping by. I used this to my advantage, and received a lot of free federal financial aid, aid I wouldn’t have to pay back. However, because loans were not properly explained to me by a real person, I accepted everything I could. I received a huge refund check midway through the semester. I didn’t need the loan money, but it was great having all this extra money to blow. I wasn’t worried about paying back that money. I knew I’d have to pay it back, someday. Throughout my three years in community college I continued to take the maximum amount of financial aid I could, and I kept spending those refund checks like a kid in a candy store. I graduated with an Associates Degree in Network Administration, a degree to this day I am very proud of. Along with that degree, I had made the deans list several times and was a member of Phi Theta Kappa, an honors society. In addition, I had several thousand dollars in student loans that I never needed to have.

At this point, I should have stopped attending college and found a job. It was still acceptable to only have an Associate’s Degree. Most companies would hire you with that. But my parents pushed me to get my Bachelor’s Degree. It sounded great and all, especially because my mom never attended college, and my dad had only an Associate’s Degree in Electrical something or another. I attended a private Catholic college as an online student. I had awesome grades. I continued to take out the maximum amount of financial aid I could have, and this time I used it to pay off credit card debt that I had accrued due to my ex boyfriend at the time spending all of my money. I graduated from the 4 year college with a Bachelors Degree in Business Administration. I never thought I would ever get as far as a Bachelors Degree and I was extremely proud of myself, just as my parents were of me. At this point, I owed about $50,000 in student loans. This included loans in my own name as well as parent loans in my dad’s name. The sticker shock was finally catching up to me. I had student loan debt, and a lot of it. I had credit card debt, an over priced car loan, and dreams of buying my own house and moving out. I started to hit rock bottom. I was miserable all of the time because of the debt I had accrued. I dug myself a hole so big I knew I would never get out.

I had just gotten a job at the community college in the Financial Aid Office. I was realizing how important it was that I coach students on student loan debt, so they wouldn’t have the same money problems that I had. To this day, I work with students and explain my horrible story. Their parents just stare at me in disbelief. The students hear me, sometimes. Some students just don’t care about the loans. They’ll have to pay it back, someday.

Although I regret everyday for going to college and getting my Bachelor’s Degree, I don’t know that I would be where I am today without it. Even though my job only requires an Associate’s Degree, there are very few employees at my level that don’t have a Bachelor’s. Do I make enough money to pay all of my house bills and student loan bills? No. Am I miserable everyday of the week? Absolutely.

If I could do it all over again, I would change many things. I would have only used grants, not loans. If I still had a balance due, I would have made a payment plan instead of taking the full amount of my loans. If I needed to earn my Bachelor’s Degree, I would have been part time so I didn’t have to take out loans.

What I’ve learned from all of this, is that students need better educated on student loans and the repercussions of taking out the maximum amounts when they don’t need to. My loans have affected my happiness, my ability to be self sufficient, my ability to pay half of our mortgage and half of the house bills. I can’t have a nice car, I can’t go out shopping for clothes when I lost 50 pounds and everything I own is too big, and most importantly, I can’t truly enjoy my life.

Bad Credit Car Loans Steadily Gaining Popularity Amidst Economic Stagnation

Personal loans are common across the society since the historic times. These can be broadly categorized as secured and unsecured personal loans. It is easier for everyone to avail unsecured personal loans as compared to the secured ones. The sum of money involved in this category of transactions is usually petite, ranging between hardly a few hundred dollars at the most. In order to avail the type of facility, a borrower, usually, does not need to put up any asset as collateral. As such, the individual’s credit score is hardly taken into account while providing the facility. However, in some instances, lenders charge higher interest rates to borrowers with dismal credit scores, on availing unsecured personal loans.

On the other hand, to avail secured personal loans, borrowers need to put up some asset or the other as collateral. As such, rate of interest involved in this range of loans is usually more reasonable as compared to the other variety. Because of the collateral asset, lenders offer secured personal loans at lower interest rates. Thankfully, both the types of loan allow monthly installments to borrowers to repay the money. In a recent development, a range of registered money lending agencies is readily providing loan to people with bad credit. To avail the unique facility, however, one has to own the clear title of a car, truck, van or SUV. The amount of money disbursed as loan is determined by the condition of a vehicle in question.

The range of loans is steadily gaining prominence and is facilitating life for scores of people by resolving their small economic needs. The unique monetary facility is more popularly called bad credit car loans. Stagnant economy is compelling the corporate sector to downsize its workforce. Lay-offs, unemployment and pink slips are rampant across the industrial domains these days. In short, innumerable folks are suffering from low credit score. Conventional lenders refuse to give loans to these people for obvious reasons. Actually, these folks invariably fail to meet the eligibility criteria of the conventional lenders. Thus, it is indeed an uphill task for these people to secure money to combat unforeseen emergencies.

The best part about vehicle equity loans is it allows users to keep and maintain their vehicles during the loan period. Volume of business for the category of lenders is increasing at an exponential pace. An increasing number of folks who need cash on bad credit unhesitatingly approach these unconventional money lenders. Professionals working in these financial establishments maintain impressive level of professionalism and never reveal their clients’ identities to third-parties.

When the loan is repaid on time, a negligible sum is levied as interest. There is no penalty on early repayment of these loans. As there is no credit check, money is handed over fast to borrowers while availing loans with bad credit. In fact, money is handed over hardly within a few hours of filling the loan application. While availing such facility, it is advisable for the borrower to carry a photocopy of the driving license and a few other relevant documents. However, professionals working in these money lending agencies will definitely provide extensive list of documents that borrowers need to furnish well in advance.