Student loans for bad credit can be received both by Private and Federal Lenders.
For many students, the joy of being accepted into their dream university is quickly replaced with the dread of not knowing how they’ll pay for this amazing opportunity. While college is a worthy aspiration and necessary in today’s job market, the cost of education has steadily been on the rise, reaching new highs seemingly every year.
It can be difficult to pay for your education even when you or your parents have sterling credit, but it can be panic-inducing to just think about getting student loans with poor credit. Having bad credit (or no credit, if you’re just starting out your adult life) closes many doors to you and means you may have to pay significantly more for your loans. However, it isn’t necessarily the end of the world thanks to both federal student loans and bad credit loans extended by private lenders.
Start by reading below to learn more about student loans for individuals with bad credit and how you can find the financing for college.
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How to get a student loan with bad credit and no cosigner
While it may be tempting to simply give up before you start looking for loans when you or your cosigner have bad credit, there are a few things you should look at before calling it quits. Try the following steps when you’re seeking a loan with bad credit to start easing your financial strain and concerns:
- Evaluate Federal Student Loans – Even if you have good credit, this should always be your first step for student loans. Because they're extended and backed by the US government, they have much lower requirements for eligibility, and you can even apply for need-based loans which also reduce your initial payments and interest. More importantly, they offer multiple ways to repay loans without sinking into a debt hole.
- Find a Co-signer With Good Credit – Although you may have poor or no credit when you’re starting college, your parents, close relations, or trusted family and friends may be in a much better financial shape. A cosigner can help you land more favorable interest rates and repayment terms. They also make it more likely you’ll receive approval for a greater range of loans.
- Look for Loans You Can Obtain Independently – Even with bad credit and no cosigners, there are still lenders that are willing to work with you and help you build stronger credit. Outside of federal loans, there are private lenders who specialize in student loans and can help you find rates that, while not the most favorable, won’t set you back too much.
- Compare Loan Features for the Best Fit – Before putting your name on any contract, make sure you compare your options. Federal loan programs offer different benefits based on your needs, and private lenders may also vary in the terms they offer and interest rates available. Make sure to have a list of your most important factors to determine which loans check the most boxes.
- Search for Fixed Rates – While a variable rate may seem like a better bet when you have bad credit, it may backfire in the long run. Variable rates do indeed start off lower but they are prone to change from year to year, meaning that today’s low rates may be replaced by much higher ones. Fixed rates may have a higher floor, but they won’t change while you’re repaying your loan.
- Be Extremely Calculated – No matter what you end up choosing, the decision is much more important when you start off with bad credit. Finding a loan you can afford and pay off responsibly can actually help you build better credit and obtain better rates in the future. Moreover, it can help you refinance your loan faster for more favorable terms.
What Are My Student Loan Options?
It may not seem like it, but even with bad credit you still have several options to access financial aid and the right loan for your particular circumstances. Before diving into the private lending market, however, you should exhaust all your possibilities for federal aid.
Federal Student Loans for Bad Credit
Start by filling out a FAFSA form, which will tell you which federal loan programs are worth applying for while quantifying the tuition you can cover before having to look elsewhere. While there are various federal student loans programs you can explore, you’ll likely want to choose from:
- Direct subsidized loans, which are originated directly by the Department of Education (and generally serviced by Fedloans) and subsidize part of your payments. While you’re in school and for six months after you’re no longer enrolled, the government covers any interest you accrue monthly. This is a need-based program, so if you have poor credit, you’re likely to be eligible for at least some subsidized loans.
- Perkins loans were available as a low-interest borrowing option for both graduate and undergraduate students with exceptional financial need. However, these loans have not been available since 2017 (with final disbursements coming in 2018).
Non-need based programs:
- Direct unsubsidized loans, Direct unsubsidized loans are similar to their subsidized counterparts, meaning that you will have interest accruing every month. This results in a higher principal once you’ve graduated, but it also means lower interest rates along with access to the benefits afforded by the federal aid system.
- Direct PLUS Loans, which start at a slightly higher interest rate than other direct loans, are not difficult to qualify for. These are designed for graduate students and parents who need assistance covering any gaps left by other financial aid and feature low eligibility requirements for those who have less than stellar credit.
You should also consider whether you’re thinking of undergraduate vs graduate loans. You can apply for both subsidized and unsubsidized loans if you’re an undergraduate, but only unsubsidized loans if you’re a graduate student.
Keep in mind that federal aid has limits on how much you can borrow, so they may not be enough. There are a few limitations concerning how much students can get in loans from the government. Keep in mind that the limit you can borrow also changes by type of loan and which year you’re enrolled in. Here is a quick breakdown to help you better understand your limits:
Freshman year: Subsidized loans cap your borrowing (for both dependent and independent students) at $3,500. Unsubsidized loans are capped at $5,500 for dependent students and $9,500 for independent students.
Sophomore year: subsidized loan caps increase to $4,500. Unsubsidized loan limits expand to $6,500 if you’re dependent, or $10,500 if you’re independent.
Junior year and onward: the maximum cap for subsidized loans expands to $5,500, while unsubsidized loans expand to $7,500 for dependent students and $12,500 for independent students.
The aggregate limit of aid granted throughout your college career. You can apply for $57,500 in total if you’re an undergraduate (with a limit of $23,000 on subsidized loans) or $138,500 for graduates (a limit of $65,500 on subsidized loans, which are included in your overall calculation).
Once you’ve exhausted your federal loan options, you can explore private student loans to help cover the remainder.
Private Student Loans for Bad Credit
How Do I Know If I’m Eligible for Privately Funded Student Loans?
Unlike a federal loan, which most applicants are likely to be approved for, private student loans have much more comprehensive and stringent requirements for eligibility. This might seem like an early barrier if you have bad credit, but before you give up, you can see just how you could qualify for different programs. You have a few options:
- Explore different lenders’ websites and see if they have calculators for your loans. This lets you see exactly what type of terms you can access, and which interest rate you would receive for your repayment.
- Make a list of requirements by the lender and ensure that you have documentation to match. Most lenders will list the things and qualifications you need, so you can prepare accordingly before you apply.
- Check your credit score to determine where you stand. Many people are surprised to find that they have poor credit, but you can be organized in advance by requesting a free credit report or signing up for a service that monitors your credit.
Keep in mind that the best private student loans will have a broad range of qualification standards and can approve you even with poor credit (though you’ll likely have to pay a much higher interest rate as a result).
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What are the Main Loan Programs
There are some programs that can help you get a loan even if you’re not necessarily qualified for it or meeting all the eligibility requirements. Explore the following to see if you are eligible:
Disadvantaged Student: Extended under Title VII, these loans are meant to help students in medical schools who come from disadvantaged backgrounds.
Also known as Loans for Disadvantaged Students (LDS), the program offers subsidized loans at fixed 5% interest rates and extend the grace period after unenrollment to 12 months
Be aware that you’ll need to demonstrate financial need, maintain good academic standing, and be enrolled full time in an M.D. or osteopathy program.
Nursing Student Loans: There are various programs designed for nursing students through the Health Resources and Services Administration. The HRSA Nursing Student Loan is a long-term low-interest loan for students looking to become nurses.
Additionally, you can apply for the HRSA’s repayment program, which can forgive up to 60% of your remaining loan amount if you commit to work at a designated critical need facility for two years (you can gain an extra 25% forgiveness if you sign for a third year).
Health Professions Student Loans: In addition to nursing loans, the HRSA offers a variety of loans to different medical students.
This includes the standard Health Professions Student Loan (HPSL) which is broadly available to medical and veterinary students; the Primary Care loan (PCL) for students pursuing an allopathic or osteopathic degree and who are working towards primary care residency training; and the previously mentioned disadvantaged student and nursing student loans.
What are the Alternative Strategies?
If you’re concerned about taking on such enormous amounts of debt while you’re already in a precarious position, there are a few ways you can avoid taking out a loan or make your life easier if you’ve already taken on debt.
Poor credit loans are not your only option, and neither are federal student loans.
Before you apply for a loan, you should start by looking for other forms of financial aid.
This can include:
- Federal or local government merit-based grants
- Scholarships offered either via private groups or your university
- Existing savings for your education
- Competitions that reward you with financial aid for winning or participating.
If you’ve run through the list of alternative strategies, it may be time to explore school loans for bad credit.
How do I check my Credit Score?
To know whether you need to worry about student loans for bad credit, you can quickly check your credit scores. To see how you stack up, follow these quick steps:
- Visit AnnualCreditReport.com once a year to get a free copy of your credit report from all three major agencies (Experian, TransUnion, and Equifax)
- Contact your financial institution or check official documents. Many banks have started including credit scores in credit-related documentation (loan statements, credit card balances, etc.)
- Sign up for a free or paid credit score service. These can help you find your scores, and also give you tangible ways to improve it and know if it’s at risk
How Can I Improve My Credit Score?
You can try to improve your standing before applying for a loan by boosting your credit score, which is difficult, though not impossible. Here are some strategies you can attempt before having to resort to bad credit loans:
- Focus on paying any bills you have on time and in full every month, which helps your future performance predictors.
- Constantly pay off your credit card debt and keep your balance low on revolving debt. You can apply for credit cards for bad credit which can help you set up a strong payment history.
- Look for any inaccuracies in your existing credit report if you have one. Many times you’ll have mistaken and erroneous items that can be removed to boost your score.
- Secure a low credit score loan and pay it off responsibly to both support yourself and improve your standing. Applying for a direct student loan can help you improve your scores to make refinancing or consolidation easier.
How Do Student Loans Affect My Credit Score?
Even if you apply for federal subsidized loans, it’s important to ask how student loans affect credit scores. If you already have debt before applying for a loan, lenders will look at your payment history and existing records to determine if you’re eligible for a low rate.
Similarly, missing many payments on your student loans can affect your ability to refinance your student loans, or even get new credit down the road. Consequently, paying responsibly and staying on top of your loan will help you build better credit over the long run.
Bad credit is definitely a major concern that can keep you up at night, but it’s not the end of the world when you’re applying for student loans. With a wide variety of options available, from federal student loans to private loans and even personal loans for bad credit, you can still find a good way to pay for your education without having to put yourself in a bind.
Make sure you explore your options and think hard about what to do before signing on the dotted line to ensure you find the best student loan to match your financial and educational needs.