Can You Get Financial Aid for College If You Have Personal Debt?
In a tight economy, people often see pursuing a college education as a way to better compete for the few available jobs. Unfortunately, people who have personal debt---particularly if they are behind or have defaulted on payments---may think that they don't qualify for financial aid. That's simply not true, although your options may be somewhat limited.
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Types
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There are many types of financial aid available, including grants and scholarships, which don't usually have to be paid back, as well as federal, state and institutional loans, plus personal loans made by private banks and credit unions specifically for college-related expenses.
Options
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Someone who has a lot of personal debt or who has defaulted on payments to credit cards or loan companies may have to exclude private bank loans from his list of financial aid options. Some state and institutional loans may also be credit-based. However, others are based entirely on need, so personal debt never comes into play. The federal government's Stafford Loan Program and Perkins Loan Program also make loans based solely on need. And other scholarship and grant opportunities are typically based on need and merit, not creditworthiness.
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Applying
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Your first step in applying for financial aid for college should be completing a Free Application for Federal Student Aid. Once you submit the online application, you'll get a Student Aid Report stating the type and amount of your financial aid award. These awards are not tied to your creditworthiness or lack thereof. Next, contact your educational institution for help applying for state and institutional aid. A financial aid advisor will be able to tell you whether these sources of aid have any credit requirements.
Alternatives
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If you find that the grants, scholarships and student loans you've received aren't enough to pay the costs of attending college, you can apply for private student loans. Some lenders that specialize in student loans, such as Sallie Mae, have products for people with imperfect credit; however, those loans tend to come with high interest rates. Another alternative is to get a cosigner to sign for a loan with you. Your cosigner should have excellent credit and little debt.
Considerations
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Government-backed loans typically have very low interest rates, but that's not always the case with private educational loans. If you already have a lot of personal debt, pursuing private student loans with higher interest rates can mean that when you graduate, you'll be buried in debt. Also, while a college degree gives you a competitive edge in the job market, it does not ensure you have a job, so you may find yourself unable to pay your existing personal debt and your student debt. The bottom line: borrow conservatively.
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References
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