How to Save for College When You Have Bad Credit

How to Save for College When You Have Bad Credit
Steven Tumulski
By: Steven Tumulski
Posted: July 2, 2013's popular "How-To" series is for those who seek to improve, rebuild or better understand their subprime credit rating.

College is expensive. Recent surveys have shown the cost of an average four year degree is $22,000.

When you realize this represents an increase of nearly 625 percent since 1980, it should become clear it’s only going to be more expensive in the future.

While scholarships and grants can help ease the burden, the majority of college educations are paid for with student loans.

This puts parents with bad credit in a tough position. Here are some tips for saving for college when you have bad credit.

1. Alternative options to college loans.

  • Upromise

Upromise is a membership-based program that provides up to 5 percent cash back when shopping for everyday purchases. It’s completely free and virtually automatic.

These earnings can be applied to a 529 plan, used to pay down student loans or sent via check for authorized college expenses. Visit the Upromise website to set up your account so you can start saving for college today.

  • 529 Plans

One of the best ways to save for a college education is with 529 plans. They’re designed to work in one of two ways:

  • Savings plans, which allow you to make tax-free contributions and gains
  • Prepaid credit plans, which allow you to pay for future college expenses with today’s rates

Just about every state offers a 529 plan, and most can be used toward education in any state for any college, whether public or private.

With the savings plan, you’ll actually be investing your money, which means there’s a chance you’ll lose some of it. Prepaid credit plans are a safer bet, although they come with slightly more restrictions on how they can be used.

  • Scholarships

Even if your child isn’t at the pinnacle of academic performance, there are a number of scholarships he or she may qualify for.

There are scholarships for which only children with red hair qualify. There are scholarships strictly available to minorities or female students. There are even scholarships reserved for students who are exceptionally tall or exceptionally short.

And the strangest of them all? The Henkal Corporation’s “Stuck at Prom” scholarship, which is awarded to couples who attend prom in outfits made entirely from Duck Brand duct tape.

“There are a number of opportunities

to receive government grants”

  • Grants

There are a number of opportunities for those who are less fortunate to receive government grants to attend college.

At the federal level, there are Pell grants, which can provide up to $5,500 per year, depending on your financial need, the cost of attendance at the college of your choice and whether or not the student is attending full-time or part-time.

At the state level, there are a wide variety of grants available, too. These also have limits and restrictions based on your financial need, costs and level of enrollment. There are different grants available for those attending college in the pursuit of high-need fields (such as nursing and teaching).

Additional grants may be available in your state for minorities, women, veterans and those with exceptionally high grades. You can find more about state-based grant programs by visiting

2. Appealing loan rejections.

Even with the help of scholarships, 529 plans and grants, it’s still likely a student loan will be needed. If your bad credit has resulted in a rejected application, you may still have a chance at obtaining one.

Follow these steps:

1. Apply for a Parent PLUS loan, which is backed and guaranteed by the federal government.

The program is specifically designed for parents with children heading off to college.

2. If this application is denied, you can always appeal the decision after waiting 30 to 45 days.

You’ll have to contact the college where your child plans to attend to do so. Some schools don’t allow appeals and each has different guidelines dictating how the appeal process works, so you’ll need to get in touch to learn more.

3. If your appeal is also denied, a few options open up for you and your child.

Specifically, the amount you can borrow through Stafford loans increases by $4,000 if you’ve been denied after applying for a Parent PLUS loan.

4. Finally, you can turn to local credit unions and small banks (but should avoid the larger institutions).

While your chances are still not in your favor, these institutions may be more willing to overlook a less-than-stellar credit history, especially if you are a local resident with a child attending a local school.

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