If your credit s꧂core is in the poor range (below 579, for FICO scores) or fair range (580 to 669), it may be more difficult to find funding for higher education — but only if you’re applying for student loans where credit matters.
Your credit is not a factor for most federal student loans (withꦚ the exception of PLUS Loans, which may not be available to people with “adverse” credit). This makes federal loans the best choiceꦿ if you’re worried about your credit history.
Private lenders, on the other ♒hand, will look at your credit and income when evaluating your loan application. But even with private lenders, there are still some solutions, including by adding a credi♔tworthy cosigner (such as your parents) to your application.
- Federal loans don’t require good credit
- Consider a cosigner on private loans
- Alternatives to borrowing with subpar credit
Federal student loans don’t require good credit
T🦩he good news is that federal student loans are ideal for bad credit student loans. That’s because most of them, including the loan types listed below, don’t even take your credit history into ac🍸count.
- Direct Subsidized Loans, which you become eligible for based on financial need
- Direct Unsubsidized Loans, which aren’t need-based and are available to undergrads as well as graduate and professional students
You can apply for these student loans by completing the (FAFSA). Theꦍ amount you can borrow, and the interest rate you pay, is standard for every borrower regardless of credit.
For example, a dependent first-year undergraduate student could borrow up to $5,500 in Direct Loans, a maximum of $3,500 of which could be sub🍃sidized. And, if the loan was disbursed between July 1, 2022 and July 1, 2023, the interest rate would be 4.99% regardless of credit score.
What about Direct PLUS Loans?
These are also federal student loans, but they’re an exception to the rule that credit doesn’t matter. These loans are available to graduate students and parents of undergrads but anyone with “adverse” credit can’t qualify. Adverse credit is defined as having…
- Recent bankruptcies, foreclosures, tax liens, or wage garnishments on your credit report
- At least $2,085 in recent accounts that are 90 days delinquent, in collections, or charged off
If you have adverse credit, you can get PLUS Loans with an “endorser.” This is similar to a cosigner and must be someone without adverse credit who will agree to take responsibility for loan repayment if you don’t fulfill your obligations. A couple of rules to be aware of:
- An Endorser Addendum must be completed online.
- The endorser will undergo a credit check.
- The endorser can’t be the student who the parent is borrowing for (in the case of parent PLUS loans).
| Tip: It’s almost always better to exhaust your federal student loan options before opting for private loans. That’s because the Direct Loans mentioned above are eligible for government-exclusive protections, including access to income-driven repayment plans, deferments and forbearances, and student loan forgiveness opportunities. Private loans, by comparison, have very limited repayment safeguards. |
Private student loans for bad credit: Consider a cosigner
Unlike the federal government, reputable private lenders require a credit check and don’t typically offer so-called bad credit student loans. However, if you need to take out private loans to supplement federal aid, you might qualify with a cosigner. That’s someone with good credit and solid proof of income who applies with you and agrees to pay back the loan if you don’t.
There are also someꦐ private lenders who may be open to bad credit loans even with no cosigner. For example, MPower Financing bases your loan eligibility on future earning potential and will not require you to get a cosigner, even with imperfect credit or no credit score at all.
However, you should be aware interest rates on loans with more inclusive eligibility criteria may be higher than with some other loans. For example, as of Feb. 16, 2023, MPower’s website quotes undergraduate loans with no interest rates at a 15.01% APR. For comparison’s sake, in the same timeframe, Credible’s partner lenders were offering APRs as low as 4.00% to 5.00%.
| Keep in mind: The total typical student loan payment is directly determined by your interest rate. So, if your loan has a high rate, you will pay more over time. |
You have the option of refinancing student loans later, though. So, if you accept a loan at a higher rate due to your low credit score and you improve your credit over time, you aren’t necessarily stuck with your costly loan forever.
If youꦐ are applying for private student loans for bad credit, shop around online and get multiple quotes from different lenders. This will give you a clear idea of who offers the most affordable loans given your credit situation.
Cosigner requirements for private student loans
The specifics of what credit score and income level is required to be a successful cosigner will vary depending on the lender and amount borrowed. In general, though, most lenders require cosignersꦦ to be U.S. citizens who are credit-worthy adu🤪lts with sufficient proof of income.
Cosigners also need to be willing to take on the responsibility of paying your debt if you don’t. Lenders can try to collect from them, and their credit could be affected if you pay your loans late or don’t pay them off in full.
Cosigners will generally need to submit their own application to a lender, and lenders generally accept just one cosigner per l♈oan.
Alternatives to student loans for bad credit
Bad credit student loans are not your only option for paying for school. Other solutions ꦺinclude:
- Racking up Advanced Placement, dual enrollment credits before stepping on campus
- Enrolling in a lower-cost college program, perhaps by attending community college for two years
- Gift aid like scholarships and grants, which can be earned based on merit or financial need
- Work study programs, paid internships, or part-time work that allows you to budget, save up and pay for school out of pocket
If you have to borrow at a high rate, you caဣn also take the loan out to get through school and then either pay off student loans early or refinance the loan to minimize♐ the interest costs you pay over time. The important thing to consider is whether you really need the money for school and how repayment will affect your opportunities in the future.