Financing for a college education is tough unless if you can get scholarships or grants, but it can be even harder if you have a bad credit score or little to no credit. Having bad or no credit will make it harder to get any loan.
The question is can you get a student loan with bad credit? Yes, you can but it may be at a higher interest rate or you need a cosigner.
Do You Need Good Credit for a Student Loan?
Student loans are usually made by the government or financial institutions such as credit unions and banks.
The credit underwriting system for federal loans depends on the kind of loan. The government-backed loans and private lenders will require a comprehensive review of your creditworthiness before deciding whether to award you the loan.
Students should look at federal loans before going to private loans. Besides being less restrictive than private loans, federal loans offer fixed interest rates and more flexible repayments.
If you are looking for a student loan, it is because you don’t have a steady income or even an income at all. Applying for a student loan from a private institution it will be hard to get a loan if you don’t have a cosigner.
You don’t need a great credit score or a cosigner to get a federal loan. Yet you will need to meet some basic eligibility criteria such as enrollment in an eligible program and citizenship requirements.
Can you get a Student Loan with Bad Credit and no Cosigner?
The short answer is yes you can.
It is still possible to get student loans with bad credit and no cosigner. Before we see the type of student loan you can get with bad credit and without a cosigner, let us first explain who the cosigner will end up being.
A cosigner is basically a third person that is required when you are applying for a loan or credit. This person will 99% of the time be a parent or family member.
Accepting to be a cosigner on a student loan for a college student or incoming student can be a risky endeavor. I know it is your child but if they do not pay then that means you must pay.
According to a statistic, about 90 percent of private student loans are cosigned.
The cosigner of your student loan should have a good credit score for you to stand a chance for approval. A cosigner with good credit history can also make the lender lower the interest rates on the loan. This will come in handy at the end of your education because you will need to start paying back the loan. The lower interest rate will make your monthly payments lower.
While a cosigner increases your chances of getting the loan (usually private loan), there is also a chance you might not get it. If you cannot find anyone to cosign for your loan then you have to look elsewhere for money.
Thankfully, this is not the end of the road, as there are numerous options out there.
Remember, the federal loan doesn’t require your credit history or a cosigner. It is more like financial aid than a loan. Federal loans are organized and disbursed by the US. Department of Education. It can include scholarships, grants, and loans.
Federal student loans come with numerous benefits including a possibility for subsidized interest, loan forgiveness programs, as well as income-driven repayment plans.
Plus and Stafford Loans
The most common federal student loans are PLUS Loans and Stafford Loans.
There are two main types of Stafford Loans available for undergraduates.
Subsidized Stafford Loans is the first type and are awarded based on financial need and has the benefit of subsidized interest. The accrued interest is paid by the federal government while the student is in school as well as during the period of deferment.
Unsubsidized Stafford Loans is the other type of loan. The students pay for the accrued interest rates while in school as well as during deferment. These loans are not need-based, and therefore, anyone who submits the FAFSA is eligible to get this aid.
The federal government set the interest rate for both subsidized and unsubsidized Stafford loans at 5.05% for undergraduate students while undergraduates pay little steeper rates of 6.6%.
The Plus Loans are offered to parents instead of students, enrolled at least half-term in any one of the eligible programs at participating and eligible post-secondary institutions or graduate and professional students at participating and eligible post-secondary institutions.
These loans carry higher interest rates than Stafford Loans, of 7.6% for those disbursed after July 1, 2018.
Nevertheless, Plus Loans still offer more affordable interest rates than what is offered by private lending institutions.
Plus loans are disbursed without the need of a guarantor and your credit history will not affect the chances of you getting or not getting the loan. However, there will be a credit check, but that is simply to ensure that there is no adverse credit history of felonies.
Perkins Loan is also a type of federal student loans but was discontinued in 2017.
Personal loans are also another option if you are seeking to finance your education. These kinds of loans are installments loans that come with fixed or variable interest rates. The variable interest may be a little bit higher and increase the overall cost of your loan.
Just like private student loans, your credit profile can also play a major role in determining the terms of your loan as well as the interest rates.
You should go with this option if you have exhausted all other loan options.
Secured and Unsecured
There are two types of personal loans:
- Secured loans
- Unsecured loans
Secured loans require you produce collateral such as your personal servings or property for you to be given a loan. This will provide the lender with a chance to try and recoup part of the loan in case you default.
Unsecured loans don’t require a pledge of collateral and are usually based on your credit profile. However, the interest rates can be higher than secured loans since the lender doesn’t have security as backup and instead, is relying exclusively on your creditworthiness to calculate your risk.
Disadvantages of Personal Loans
The only advantage of personal loans is that they are the last resort when every other option hits a dead end. Overall, I would not recommend a personal loan if you can get a federal loan.
Since they entirely depend on your creditworthiness, it can be hard to qualify for personal loans if you have a poor credit history or no credit at all. However, you can find a third party with a better or more-established credit profile to consign the loan for you.
Another thing you need to understand is that unlike federal student loans, personal loans interest rates may not be tax-deductible.
What Credit Score do you Need to get a Student Loan?
If you are completely maxed out of the federal student loans, there is always an option for private student loans.
Most private student loan lenders require you have a good credit score of 670 or higher on a 300-850 FICO scale.
With the credit score rating, the better score you have the lower you the rate will be. In general, the credit score of a student loan refinancing is usually over 700s.
Remember, you can still refinance your student loans with bad credit if you have a cosigner.
Besides credit score, debt refinancing lenders may look at other factors such as debt-to-income ratio. Just so you know for a student loan, the required debt-to-income ratio is typically 50% or below.
Students usually can’t meet the credit score requirement on their own, especially college students. This is because you have not been around long enough to build up your credit.
Private lenders, as we have seen above, allow borrowers to bring a parent or a third party with good credit history to cosign for the loan.
Is Everyone Eligible for a Student Loan?
Nearly everyone qualifies for student loans. If you are seeking to finance your education with a loan, the first step is to explore the options you have.
As a student, you have only two viable options; federal student loans, and private student loans. You should go first for federal student loans before considering private student loans.
The second step is establishing whether you qualify for the loan or not. Each loan category has different qualifying criteria. You will need to submit the FAFSA form to see what you can qualify for in loans.
Qualification for federal student loans
The first student loan option you should be looking to apply is the federal student loans. It is cheap and with fewer restrictions.
Here are what the requirements are for federal student loans.
- Have a valid social security number.
- Male students must be registered with selective service; males between 18 and 25 years old.
- Be a United States citizen or an eligible noncitizen; undocumented immigrants will not be eligible to receive federal student loans or any state funding.
However, permanent residents possessing green cared can apply for state aid. On the other hand, immigrants with T-1, battered-immigrant-qualified alien, or refugee status may be eligible as well.
- Must have a high school diploma or equivalent, like a GED or even a certificate from a homeschooling program.
- Enroll in an eligible school. If you are a student from unaccredited school you may not stand a chance of qualifying for the federal aid. Keep in mind that some schools choose not to receive aid from the government.
- Complete the Free Application for your federal student aid. Any high schooler that wants to apply for financial aid must fill out the FASFA, which is a form requiring you provide your family’s financial information to gauge how much you can qualify.
Remember that even those with little to no indicated need can qualify for the student loans, so it provides encouragement for everyone to apply for it. But without the FAFSA form, you won’t be able to receive any state funds, scholarships, or federal loans.
- Understand full federal financial aid. Students cannot be in default on other types of federal loans or owe any money on a federal grant.
- Have an average of 2.0 GPA. For you to stand a chance of getting federal student loans, you must maintain a 2.0 average GPA. If your grades drop, you may not qualify for the loans until the grades improve again.
- Be at part-time status or more. You must be considered as a part-time to be eligible for the federal loans. Each school determines the meaning of part-time and full-time, so be sure to talk with your financial aid office to understand how many credits you will require.
How to Shop for a Student Loan with Bad Credit
Having bad credit is not the end of the road when looking for student loans. You can still borrow using private student loans if you can’t get federal student loans. If you know you have bad credit, follow these steps to shop for a student loan.
- Always go for federal student loans first before considering private student loans. Complete the Free Application for Federal Student Aid form (FAFSA), to see if you are eligible for federal student loans, state aid such as scholarships, work-study, and grants.
Federal student loans are typically lower in interest rates than private loans and come with some other benefits such as loan forgiveness programs as well as income-driven repayment plans.
- Find a co-signer with unblemished credit history. As you may know by now, for you to borrow a private loan, you need a co-signer with a good credit score. This will not only help you get the loan but also the most competitive interest rates.
Your cosigner must also have a steady income. A cosigner can be a parent or any other creditworthy third party, and they will be responsible for your debt if you fail to honor it.
- If you can’t find someone to cosign your loan or don’t want a cosigner, consider shopping for the loans that you can get independently. Some private lenders provide students with loans without asking for credit scores.
These private institutions would ask for your future income potential and the higher your earning potential, the higher your chances of getting competitive interest rates.
- Explore the options. Don’t just settle with the first private loan you come across, shop around and compare the features of the loans to see which one meets your needs. Be sure to get the lowest interest rate for the loan you are eligible for.
Some of the things you should look for in terms of the loans include whether the lender is willing to postpone payments in the event you have a hard time paying them, and how long are they willing to give you.
That is perhaps the most important thing to look for in a loan because chances are you are not financially stable during school and you might have difficulties repaying the loans.
You need to find out if there is prepayment, origination, or late fees as well as how easily you can contact the lenders on the phone, live chat, or email in case you encounter service or billing issues.
- Go for a fixed interest rate loan. If you find yourself in a position to choose, a fixed interest rate is a better option than a variable interest rate because your rate won’t increase over time.
- Understand your bottom line. To be on the safe side, before agreeing to accept the offer use a student loan calculator to work out what kind of payment you will face after getting the loan for multiple years.
- Consider debt refinancing in the future. After finishing your studies and have a decent credit profile, refinancing your private student loans can be a great option. You can do this to a much lower interest rate, but you will need a solid income as well as a credit score of 690 or higher and a great history of on-time debt payments.
Can I Improve my Creditworthiness?
If you don’t need private student loans right away and can wait for a couple of years. There are ways you can use the time to improve your credit score significantly and position yourself to qualify for the loan.
The first step is to request copies of your credit report. Several agencies that can supply you with the copies include Equifax, Experian, and TransUnion. You can use Credit Karma to review your credit and credit score for free.
Review the credit report and if you don’t agree with anything in it, dispute them. Studies show that 20% of credit reports contain errors. Once you have the mistakes rectified, you will instantly notice an improvement in your score.
Another way to improve your score is by reducing total debt levels as well as having consecutive on-time payment of your bills. Work on this for a few months to further improve your credit score.
It is recommended to check your credit scores even if you have no credit history, as it will provide you with a place to start building good credit. Start applying for your own line of credit including department store credit card or a visa credit card from your bank.
Can Student Loans Affect My Credit Score?
Student loans will impact your credit score in numerous ways. Paying off your loan early can show you pay your debt but making a payment on time shows that you are a reliable borrower.
On the other hand, failing to pay on time would also damage your creditworthiness. If you feel you are not going to make the payments on time, consider asking for forbearance or deferral.
We went through every possible way you can get a loan for college with bad credit. Bad credit is not the end of the road when it comes to financing your college education. It means you just need to get a little creative on how you might be able to.
You can read how to get a private loan to learn more about this type of loan.