Student Loans for Bad Credit

Getting into college can feel like a ticket to your best life. Once you have a degree, you’ll be able to get a good-paying job, buy a house and fulfill all your other dreams and goals.

But getting that degree can be harder than you realize – especially if you have bad credit.

Having bad credit is like owning a car, but having a suspended driver’s license. You have the tool, but you don’t have the ability to go anywhere. 

Fortunately, there are ways to get around having bad credit when applying for student loans. We’ve compiled the best ways to stop letting your bad credit prevent you from taking out a student loan. 

What is bad credit?

Anytime you take out a loan, the lender will run a credit check and view your credit score. Out of all the factors determining loan eligibility, your credit score is the biggest one.

If you have good credit, you’ll likely be approved and receive a low interest rate. But if you have bad credit, you’ll likely get a high interest rate, if you’re approved at all.

Just like other lenders, student loan companies will check your credit to determine if you qualify for a loan. There are two types of student loans: federal and private. In general, federal student loans do not require a credit check. If you have no credit history or bad credit, you can still qualify for a federal student loan. 

However, private lenders will look at your credit. Most college students do not have a credit score or have a limited credit history. That’s why private lenders often require a cosigner who does have good credit, as well as a stable income.

While the exact credit score criteria differ among lenders, the minimum credit score for a private student loan is around 670. If you or your co-signer’s credit score falls below that figure, you may have trouble qualifying for a loan.

How to get student loans with bad credit 

Have bad credit? Don’t worry. There are still plenty of ways you can get a student loan:

Take out federal loans first

Every student, no matter what their credit score is, should maximize their federal student loans before applying for private loans. Not only do federal loans come with more benefits and lower interest rates than private loans, they also don’t care about your credit score.

The maximum amount you can borrow in federal student loans is currently:

• First-year student: $5,500 or $9,500
• Second-year student: $6,500 or $10,500
• Third-year student: $7,500 or $12,500
• Fourth-year student: $7,500 or $12,500
• Graduate student or professional student: $20,500 annually

The only time when federal student loans will check your credit is if you are applying for a Direct PLUS loan like a Grad PLUS Loan or a Parent PLUS loan. Even then, the federal government is mostly checking for major red flags like foreclosures, defaults, liens, etc.   

If you do have one of these negative events on your credit report, you may have to add an endorser on the loan. An endorser is similar to a cosigner.

Add a cosigner

If you don’t qualify for federal student loans or if you have already maxed out your federal loans, then your best remaining option is take out a private student loan.

Unfortunately, private student loans will almost always run a credit check so if you have bad credit, you may struggle to be approved. Or if you are approved, you may get a high interest rate that will end up costing you thousands or even tens of thousands of dollars in total interest.

One way to get around that? Add a co-signer. A cosigner is an adult who agrees to take full responsibility for your loans if you default. Private student lenders usually require a cosigner because most students have no credit history, a limited source of income or both.

When choosing a cosigner for a private student loan, there are few restrictions. Contrary to popular belief, you don’t have to be related to the cosigner. They have to be a legal adult, be a U.S. citizen or permanent resident and need to have good credit. 

When you apply for a private student loan with a cosigner, they will have to provide personal information about themselves as well. Once the loan is approved, it will show up on the co-signer’s credit report as well as yours. Having a student loan on their credit report can impact their ability to qualify for a loan.

Find out what a no-cosigner student loan is here.

Apply for grants and scholarships

While private student loans care about your credit score, grant and scholarship providers do not. If you have bad credit, it’s even more important to apply for scholarships and grants.

The best place to start is by completing the Free Application for Federal Student Aid (FAFSA), the same form you need to complete to receive federal student loans. Completing the FAFSA can make you eligible for both outside and internal scholarships and grants.

You should also apply for external scholarships from third-party companies and nonprofit organizations. While many students rely on scholarship sites, it’s even better to do your own research.

Start by making a list of all the unique attributes you have, like your hobbies, skills and interests. Then, Google each descriptor along with the word “scholarship.” For example, if you speak Italian, Google “Italian scholarship.”

Refinance your loans after graduation

If you have bad credit and only qualify for a high interest rate on your student loan, don’t despair. Just because you have a high interest rate now, doesn’t mean you’re stuck with it for the long haul. You can always refinance your student loans later on if you can improve your credit score.

When you refinance a student loan, you enter into a new loan agreement, usually with a different lender. This means that you can potentially choose a different interest rate and a different repayment term. If you had bad credit as a student and now have a good or excellent credit score, you might be able to reap huge savings, both in your monthly payment and over time. 

When you are refinancing, just make sure not to refinance your federal student loans. These often have lower interest rates than private student loans and have much greater access to income-driven repayment plans, loan forgiveness programs, long deferment and forbearance periods and more.

Avoid income share agreements 

Students with bad credit may be interested in alternative types of financing like income-share agreements. Here’s how they work. When you sign up for an income-share agreement, you agree to give the lender a percentage of your salary once you graduate. This usually goes on for 10 years.

Unlike private student loans, income share agreements are not given based on your credit score or if you have a cosigner. Instead, they are determined based on your income ability after you receive your degree. Students who are likely to earn high salaries are more likely to qualify for income-share agreements.

For example, if you’re getting a business or finance degree, you’re more likely to be eligible than an art history or English major.

If you have bad credit, paying back loans, including student loans, can give you the chance to improve your credit score. The most important aspect of a credit score is your payment history or whether you pay your bills on time.

Just making your payments on or before the due date can improve your credit score. You don’t have to pay more than the minimum for your credit score to improve.

Some research shows that this may result in an effective interest rate of 20% – which is much higher than rates for private student loans.

FAQs about student loans for bad credit