Your Credit Stinks — Should You Put Off Going Back to School?
Bad credit can happen to anyone. You lose your job, get sick, have a major unexpected expense — anything that puts you behind on your bills and deeper in debt. Even if you manage to get back on track, missing even a few monthly payments can hurt your credit score, making it difficult or even impossible to get credit for several years.
However, the good news is that you can still go back to school even if your credit stinks.
Credit and Student Loans 101
Unlike mortgages and credit card companies, the federal government doesn’t check your credit when you apply for a student loan. How much you can borrow depends on the cost of your program and your household income, but whether or not you paid your Visa on time isn’t going to affect whether you can get federal funds to pay for school.
The only time that credit could come into play is if you already have outstanding loans that are in default. If you took out loans for school in the past and didn’t repay them, Uncle Sam isn’t going to pony up any more cash until you get them current. That doesn’t mean you won’t be able to return to school at all, just that you will have to take steps to rehabilitate your debt before you can take out any more loans. That might be as simple as agreeing to a repayment plan for a certain amount of time or as much as repaying all of the back payments, depending on how much you owe and how long you’ve been in default.
Of course, federal loans aren’t your only option to pay for school, but if you have defaulted on previous loans, you will have a hard time getting money from any other source as well, since all other programs (besides scholarships and grants, and tuition reimbursement) require credit checks. Defaulted student loans can also haunt you forever by tanking your credit score, so it’s a good idea to get them taken care of anyway.
Questions to Consider
While having poor credit shouldn’t hold you back from going to school, that doesn’t mean that you should start applying to programs without any further thought.
- Will this degree help me earn more money? Obviously, earning any degree is going to increase your earning potential as opposed to having only a high school diploma, and the higher level of education you attain, the more you can potentially earn.
However, not all degrees are created equal when determining salaries, so carefully consider how your planned course of study will impact your career in the long term. Earning an MBA, for example, opens the door to a wide range of career options, many of which offer competitive salary. The more specialized your degree, the greater your earning potential.
- Can I study for less? Many students have to take out loans to pay for school, but taking on more debt may not be the best plan if you have sketchy credit to start with. While student loans aren’t necessarily “bad” debt, they do add to your overall debt burden — which lowers your score — and when you have to repay the loans, they divert cash you could be putting toward paying down other obligations. Look for other ways to pay for school that you don’t have to repay, such as scholarships and grants, employer reimbursements, and earning credit for classes you’ve taken elsewhere. All will reduce your out-of-pocket investment and help you stay on track with cleaning up your credit.
- Can I afford all of my bills while I’m in school? Student loans will cover some of your living expenses while you’re in school, but again, you want to borrow as little money as possible. Before you enroll in school, make sure you can meet all of your current obligations. If you’re deep in debt, entering a credit counseling program may help you reduce monthly payments (and get everything paid off) to ease your load, but that should be your last resort if you’ve exhausted other options.
So should you put off going back to school if your credit isn’t great? In most cases, no. Earning a degree will most likely help you get out of the hole you’re in. You might have to fix a few issues before you get funding, but it’s not usually insurmountable — and soon, your bad credit could be a thing of the past.