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If you're planning to attend college or graduate school but need financial aid to make it happen, you'll have to complete the Free Application for Federal Student Aid, more commonly known as the FAFSA.
The U.S. Department of Education uses the FAFSA to determine your financial need and eligibility for different types of aid. States and universities also use the FAFSA to assess eligibility for grants, loans and scholarships. The form requires significant information about your family's finances, so it can take some time to gather documents and fill out. However, you do not need to have any credit history to complete the FAFSA.
Does the FAFSA Require a Credit Check?
Generally, federal student loans and other financial aid do not have a credit requirement. As a result, your FAFSA application won't require credit information, and thus the Department of Education won't check it. The one exception is Parent PLUS loans. In addition, if you apply for private student loans, the lender may require a credit check (more on that later).
Federal student loans charge a fixed interest rate that is the same for all borrowers. For the 2020-2021 school year, that rate is 2.75% for undergraduate borrowers and 4.30% for graduate borrowers. Because of their low interest rates and lack of credit requirement, federal student loans are almost always the best borrowing option for those with bad credit.
How to Apply for the FAFSA
The FAFSA is available online starting October 1 for the following school year. It's free, though you must complete it for each year you're in school. While you'll usually have until early summer to complete the application, it's best to do so as soon as possible to have the best chance of getting more student aid.
When you fill out the FAFSA, you'll be asked to submit a significant amount of information, such as:
- Your Social Security number (and if you're a dependent student, your parents' Social Security numbers)
- Your driver's license number if you have one
- Tax return information (for both yourself and your parents if you're a dependent)
- The amount you and your parents have in savings
- The list of schools you're applying to or have been accepted to
This information helps the government estimate how much your education will likely cost, how much your family can contribute and how much financial aid you'll probably need.
There are a few common FAFSA mistakes you should make sure to avoid:
- Submitting the form late: Financial aid is often limited, and if you submit your FAFSA at the last minute or even past the deadline, you may miss out on certain aid options. Some forms of aid, such as university grants, are especially limited and doled out on a first-come, first-served basis. If you complete the FAFSA as soon as possible, you may be more likely to access these opportunities.
- Assuming you're not eligible: You may assume if you don't get financial aid one year, you won't get any the following year. Always apply for FAFSA, even if you didn't receive aid the prior year, since it doesn't rule out you receiving it in the future. If your family's income has changed, you may be newly eligible for certain aid, or there may be different aid options in one year versus another. Also, you have to submit the FAFSA to be eligible for federal student loans, which may be your best funding option if you have bad credit.
- Thinking your family makes too much money: You may be surprised at what income level can still be considered as having need. In addition, some schools offer financial aid that isn't need-based, and you can apply for student loans even without demonstrating financial need. There's no downside to filling out the FAFSA, especially since it's free and there's no credit check.
Alternative Ways to Pay for School
Once your FAFSA is processed, your school will send you an aid offer letter or upload it to the financial aid section of your student portal. It will indicate which options you qualify for and ask you to accept those you want.
The federal government suggests students first accept any free aid offers, such as scholarships and grants, since these don't require repayment. The next best option is "earned aid," such as work-study programs that help you pay for school by working on campus. Then you can consider federal student loans, which have to be repaid with interest, but typically have lower interest rates and more favorable terms than private loans.
Students with the most financial need may qualify for subsidized federal loans, which don't start accruing interest until after you leave school. If you're not eligible for these, you may be offered unsubsidized federal loans, which start accruing interest immediately but still have low interest rates and generous repayment terms, including options for deferment and forbearance.
If the financial aid package you receive isn't enough to cover education costs, here are some other options to help you pay for higher education:
- Apply for private student loans. These loans are obtained through a private lender, such as a bank or student loan provider like Sallie Mae. The interest rates are usually higher than federal student loans and private loans don't come with government deferment or forgiveness programs. They also usually require a credit check, so students without any credit history will likely need a parent or guardian to cosign. Rather than opting for the first lender you encounter, it's wise to obtain quotes from several different lenders to make sure you're getting the best deal possible. Even a small difference in your interest rate can make a huge impact in how much money you spend over time.
- Apply for other scholarships. While the FAFSA puts you in the running for some scholarships, there are thousands of others offered by various businesses, organizations, states and local governments. Scour sites like Fastweb or Scholarships.com and apply to any you may be eligible for. Even if they're just for a few hundred dollars, they can add up—and unlike loans, they don't require repayment.
- Get a part-time job. Just because you don't qualify for a federal work-study program doesn't mean you can't find a job elsewhere to help offset your college expenses. You could work in retail or at a restaurant near campus, deliver meals or groceries, or babysit for local families.
Having bad credit won't prevent you from applying for the FAFSA—or getting financial aid. Whether you're awarded grants, scholarships or federal student loans, completing the FAFSA is the first step, so don't let your credit stop you.