How Do I Apply for Student Loans With Bad Credit?
The market for student loans is getting tighter since the recession. All lenders are looking more closely at credit histories, income and collateral, and that includes student lenders. If you have bad credit, you may have more difficulty getting a student loan than you would have in past years.
Still, you have options even if your credit score isn’t perfect. Here are a few ways you can get funding even if your credit score is less than ideal.
Fill out the FAFSA
Before you even think about going to a private lender, fill out the Free Application for Federal Student Aid (FAFSA). The federal government will use this document to gauge your financial standing and determine your eligibility for grants as well as low-interest, fixed-rate and subsidized loans. Government loans including the PLUS, Stafford and Perkins loans, don’t require credit checks at all—and their interest rates will be much lower than what you’re likely to get through a private lender. However, PLUS loans do require that you not have an adverse credit history—meaning you’ve never
been over ninety days late on a payment or have any Title IV debt.
The more financial hardship you’re judged to have under the FAFSA,
the more federal aid you qualify for. The only federal loans that do require
credit checks are Parent and Graduate PLUS loans, which are not need-based.
It isn’t easy to get student loans with bad credit. But it is possible—especially if you apply for federal student aid and talk to your school regarding opportunity loans.
If you’ve already exhausted your options for grants, scholarships and federal aid, get a cosigner for a private student loan. A cosigner guarantees your loan repayment, and their credit is used to judge the interest rate and loan terms—so you could get a much lower interest rate or get access to loans you ordinarily wouldn’t be eligible for on your own. Some banks may agree to release your co-signer’s liability once you’ve made a prearranged number of consecutive payments on time—often 48.
Look into alternatives
There’s a small amount of loan aid out there that doesn’t care about your credit scores, not including federal student loans. For instance, some schools arrange with lenders for “opportunity loan” funding they can give to students without screening for credit criteria. Talk to your school if you have bad credit to see what your options are in this area.
Know the terms
When you go to a private lender, bear in mind that they aren’t likely to give you complete details on how much your loan will cost until after you’ve applied for a loan. This is to help them prevent you from comparing various loans based on costs. Usually, they’ll advertise only the lowest interest rate they offer for their customers with excellent credit—expect to pay about 6-9% higher interest than the advertised rate, with lower loan limits.
Use student loans to improve your credit
If you have a cosigner, your repayments are likely to affect only their credit, not yours. But once your cosigner has been released, each on-time payment you make improves your credit. Use your student loans as an opportunity to improve your credit score by always paying your bill on time. This will improve your chances of getting better credit deals on future purchases, including cars and homes.
Beware of financial institutions advertising “bad credit” loans
There are plenty of scams out there, and if you’re desperate for a loan, it makes you much more vulnerable. Be wary of any financial institution that actively advertises loans specifically for people with bad credit. It’s likely that these loans have exorbitant interest rates and exploitative terms. Instead, discuss your options with a reputable lender.
It isn’t easy to get student loans with bad credit. But it is possible—especially if you apply for federal student aid and talk to your school regarding opportunity loans. In addition to these areas, it can help to research grant and scholarship opportunities in your community and within organizations you’re involved in—grant and scholarship aid is the best kind to get, because you don’t have to pay it back. With some research, hopefully you’ll be able to fund a college education regardless of a low credit score.
More About Understanding Student Loans
- Credit Repair Services You Should Never Pay For
- Questions You Should Ask Before Applying for Student Loan Forbearance
- The Bank on Students Act: What It Is, and How It Could Help Student Borrowers
- How the Death of a Co-Signer Can Affect Your Student Loan
- Peer-to-Peer Student Loans: What They Are, and How They Can Help You Pay for College
- If You're Unable to Work Because of a Disability: What Happens to Your Student Loan?
- New Rules for Debt Collectors: How They Could Affect Your Student Loan
- Having Trouble Repaying Loans? The Department of Education May Be in Touch