A co-signer can help you qualify for — or receive lower interest rates on — student loans. If you don’t have access to one, it can feel like you’re out of luck — but you do still have options.
Federal student loans don’t require a co-signer, so you can take them out on your own without a credit history or a parent’s help.
Private student loans, on the other hand, require borrowers to have strong credit histories. You’ll likely need a co-signer to qualify for one, especially if you’re under 21.
You can build your credit to improve your chances of qualifying for a private loan, but it’s important to exhaust federal loans, scholarships and grants before you do.
Here’s how to get a student loan independently.
Borrow federal student loans first
First, fill out your Free Application for Federal Student Aid — or FAFSA — to determine your eligibility for federal grants and scholarships.
Filling out the FAFSA will also qualify you for federal student loans, which should be your next stop, after grants and scholarships, if you need additional funds for school. They don’t require a co-signer, Plus, they come with useful benefits, such as lower interest rates, income-driven repayment plans and forgiveness programs.
There’s a limit to the amount you can borrow in federal loans each year you’re in school. A first-year undergrad who’s considered a dependent student for FAFSA purposes can borrow up to $5,500; independent students can borrow up to $9,500.
That means some students might need to cover funding gaps with private student loans. But private loans should be your last resort because they don’t come with the same protections as federal loans if you can’t afford your monthly payments after you graduate.
Build credit before you apply for a private student loan
Along with your income, outstanding debt and cash flow — or the amount you have left over after covering your expenses — private lenders look at your credit score to determine whether you’re eligible for student loans. A credit score is a number lenders use to determine how responsible you’ve been with your money. There are different types of credit scores, but the FICO score is the most commonly used, and it ranges from 300 to 850. The higher yours is, the better your odds of qualifying for a private loan with a low interest rate.
The most important factors in your credit score are your payment history — that is, whether you’ve paid your bills on time and in full — the amount of outstanding debt you have, and how long you’ve been using credit.
If you decide to take out private student loans as an undergraduate, you’ll most likely need a co-signer. If you don’t have a credit card, car loan or utility bills in your name, it’s hard to show that you’ll make your student loan payments on time.
It’s a different story for graduate students, who tend to have more experience with credit than undergrads. More than 40% of graduate students were able to get a private student loan without a co-signer in 2015-16, while only 6% of undergrads could, according to student loan research firm MeasureOne.
Even if you have a credit history, you’ll likely be eligible for lower interest rates with a co-signer, which will decrease the amount you owe overall, says Rod Griffin, director of public education at credit reporting bureau Experian.
How to build credit if you’re younger than 21
As a result of the Credit Card Act of 2009, it’s difficult to get your own credit card unless you can show you have enough income to pay the bill. Instead, you can build credit by opening a credit card with a co-signer or having a parent or another adult add you as an authorized user to his or her card. Make sure the card reports authorized users’ activity to the credit bureaus, Equifax, Experian and TransUniuon.
Borrowers under 21 may also be able to take out a credit-builder loan, a type of small loan typically offered by community banks and credit unions.
How to build credit if you’re 21 or older
Apply for a secured credit card, a type of card that lets you make a deposit — say, $500 — which often becomes your credit limit, or the largest amount of money you can spend before you pay off the balance. Choose a manageable limit and use your secured card only for small purchases.
“Maybe only use it for gas for your car, or only use it for paying your cell phone bill,” says Robby Dunn, community outreach manager for Consumer Credit Counseling Service of Buffalo, Inc., in Buffalo, New York.
If you keep your total usage at 30% or less of your credit limit and pay off all your purchases each month, you’ll be on your way to an excellent credit score.
Prepare for a successful private loan application
Many young borrowers apply for private student loans without knowing their credit scores or understanding what’s in their credit reports. Researching these issues before you apply will work in your favor.
“Giving yourself several months in advance will help you address any issues you might have so that when you walk into the lender, they don’t get any surprises, and neither do you,” Griffin says.
Understand your credit report
Order a free copy of one of your credit reports from annualcreditreport.com three to six months before you apply for a loan or for any other type of credit. You’re entitled to a free report annually from each of the three bureaus.
Read your report closely and review the risk factors listed at the bottom; they’ll tell you what affected your score and what you need to work on. Maybe you haven’t been using credit for long enough or made a few late payments on a car loan. If there’s an error in your credit report, dispute it right away.
Know your credit score
It can be difficult to get your FICO score for free. Some credit card issuers and lenders provide them at no charge, and you can pay to receive yours through a credit bureau. The VantageScore is a FICO score alternative, which is available for free from several services.
Knowing your credit score will further help you understand if you’re ready to get a private student loan on your own. You’ll likely need a score in the 700s to get a loan at a favorable interest rate, Dunn says.
More from NerdWallet
Applying for student loans: federal and private
3 ways to tackle private student loans
The complete guide to student loan interest rates
Brianna McGurran is a staff writer at NerdWallet. Email: bmcgurran@nerdwallet.com. Twitter: @briannamcscribe.
Image via iStock.
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