If you have no credit history or a bad credit score then finding a student loan might not be simple. But, if you are able to get somebody suitable to agree to be a cosigner and guarantee your loan repayment then this can certainly help a great deal in securing a loan.

College students generally have few if any credit cards, no car loans and seldom have a home mortgage loan which means that they have no credit history against which a lender can judge the risk in granted them a loan. In addition, where students do have a credit history it is all too often relatively poor because, as with a lot of us when we are young, they have made some unwise decisions and overstretched themselves with the result that they ran into difficulties meeting their repayments.

In either case the lack of a credit history or problems with late repayments and possibly even defaulting on loans will frequently place a student in a high risk category as far as most lenders are concerned. This means that loan officers, including those taking decision on behalf of the Federal student loans programs, will usually process applications from students in this situation with care. In many cases applications will be denied or, in borderline cases, loans may be approved but a higher interest rate will be charged to make up for the risk and to compensate for higher default rates.

One way to counteract the lack of a credit history or a bad credit score is for students to use a cosigner for their loan application. In a lot of cases this will be a parent and loan officers will consider the credit history of the parent when deciding whether or not to grant a loan.

In this case the parent’s credit history becomes the chief factor in fixing the interest rate for the loan and parents with a superior history will more often than not get the best rates, whilst parents with low credit scores will normally pay a higher rate. This difference can appear small at first glance but can actually add up to a considerable sum over the normal 10 year repayment period.

For example, one popular program grants loans at 4% for borrowers with a superior credit score increasing to 6% for those with a poorer but still acceptable record. The variation of 2% may not seem like much but can represent more than $5,000 over the life of a loan.

It is not at all unusual nowadays for a student to require as much as $100,000 to fund an undergraduate education and, even if interest is paid from the outset rather than being accumulated, interest at the current Stafford loan rate of 6.8% is almost $567 per month or $6,600 per year. Reducing that interest rate to 5%, which is the present rate for a need-based Perkins loan, lowers these numbers to $417 and $4,820.

It should also be remembered that these figures assume that repayment begins immediately. It is however much more common for repayment to be deferred until six months after college which is going to increase these figures considerably.

Borrowers with a cosigner who has an excellent credit record can not only improve their chances of obtaining a loan in the first place, but can also lower their total loan repayment greatly.