Credit check not needed for public school loans

Except for the Parent PLUS loans, federal loans don't rely on credit rating


Opening Credits
Columnist Erica Sandberg
Erica Sandberg is a prominent personal finance authority and author of "Expecting Money: The Essential Financial Plan for New and Growing Families." She writes "Opening Credits," a weekly reader Q&A column about issues for people who are new to credit, for

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Dear Erica,
I was checking in on my student loan and found out I am NOT in default like I thought. I'm soon to be the mother of two kids and want to finish my degree. Can I go back to school and qualify for new loans and grants? -- Sabre


Dear Sabre,
What a relief! I must say, it's usually the opposite revelation. Borrowers think their loans are in good standing, only to discover that they've missed a deadline or didn't file the right paperwork for a formal payment extension. After that, it's hands-in-the-air panic time, because it's often right before they want to get a new loan or line of credit.

I'm also glad that you're motivated to finish what you've started. Having to repay student loans when you don't have a degree to show for all your hard work is kind of like receiving a big bill for a dress you can't wear. What's the point?

As for your ability to finance your education, most federal loans are not contingent on the applicant's credit status. The only one that is -- the PLUS loan -- is given to parents who want to finance their children's' schooling, so it's not relevant for you anyway.

Because you already owe for your education, you probably know that federal loans -- called direct loans -- come in subsidized and unsubsidized form. When the loans are subsidized (such as Perkins and some Stafford), you are not charged interest while you're enrolled or in grace and deferment periods. To get them, you'll have to demonstrate economic need. If you can't, you can still qualify, but the loans will be unsubsidized, so interest will accrue right away.

Financial institutions that offer private student loans do check credit history, so if you were to try for one but your credit rating is poor, you may not be eligible. Check your FICO scores at to understand what your scores are today. Even if you do qualify, I urge you to be prudent when taking these out. The interest rates for private loans tend to be higher than for federal loans and don't come with as many flexible repayment options.

Your first step is to complete the Free Application for Federal Student Aid to find out just what federal loans you'll can qualify for. The award letter from your educational institution of choice will outline how much is available to you and what types of loans they are. Just remember that you don't have to take it all! Even when the loan is subsidized, it's still money you have to repay, and the monthly payments can be painful. Always borrow the least amount possible.

Conversely, grants and scholarships are not loans at all, so no credit check is required. It's free money, and you should try for the most you can get. You'll find out if you're eligible for grants (like the Pell, which is based on financial need) after filling out the FAFSA. Scholarships are awarded for all sorts of reasons, including academic, specific area of study or if you fit a certain profile of student. Your school's financial aid counselor should be able to advise you on which type might be best to pursue.

Back to your current set of student loans: stay aware, Sabre. It's great that you checked on them when you did, but it does appear that you also took your eye off the ball for a bit. It's always best to be on top of important dates, especially when grace periods, deferments and forbearances end. Mark your calendar for key deadlines. With two children on the way, you'll need to simplify and organize tasks now!

See related: How to move student loans out of default, Households staggering under student loans

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Published: March 11, 2015

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