Can You Get Student Loans With Bad Credit?

Your credit score can make or break your ability to be approved for many types of loans. It can affect the interest rates that lenders are willing to offer you, the repayment periods that are available, and even the total amount of money you may be lent. However, since college costs so much, many current and prospective college students are wondering: Can you get student loans with bad credit? The answer is that it depends on the kind of loan. Some student loans are available without a credit check, but others do require a credit check and judge your loan eligibility by reviewing your credit score.

How Your Credit Score Affects Loan Eligibility

Whenever a lender offers a loan, they’re taking on a risk. Specifically, they’re taking the calculated risk that the borrower will be able to repay the loan in a timely manner, and according to the terms negotiated at the time the loan is disbursed. Credit scores help lenders to quickly evaluate a potential borrower’s likelihood to repay a given loan. High credit scores generally reflect a positive history of taking out and paying back debt in a timely fashion, while low credit scores may reflect the opposite. Generally, a credit score of above 670 is considered good, and people with scores below 670 are considered subprime borrowers.

If you have little to no history of borrowing and repaying debt, this can also cause lenders to be wary of lending to you. They may either give you a higher interest rate to offset the risk they take on or place a lower limit on the amount of money that they will lend you. This is the case with many current and prospective college students, who have not necessarily had enough time to build up a reputable credit history and improve their credit scores.

Can You Get Federal Student Loans With Bad Credit?

Generally speaking, there are two types of student loans — federal and private student loans. Federal student loans are offered by the federal government, through the Department of Education, to college students and their families. The Department of Education doesn’t take credit scores into consideration for most of the student loans that they offer, including direct subsidized and unsubsidized loans. However, there is one exception to this rule — Direct PLUS Loans.

Direct PLUS Loans

Direct PLUS Loans are a type of student loan available to graduate and professional students, and the parents of undergraduate students. In addition to meeting general requirements for student loan eligibility — such as completing your FAFSA — Direct PLUS Loans are the only type of federal student loan that requires a credit check. Your credit score won’t determine how much money you can borrow — that is determined by the cost of attendance at your own (or your child’s) school — but a poor credit score can make you ineligible for a Direct PLUS Loan.

Can You Get Private Student Loans With Bad Credit?

Private student loans are lent and administered by private lenders, such as banks, credit unions, or companies that specialize in student loans. These lenders also deal in loans not typically reserved for students, such as personal loans, business loans, and mortgages. Therefore, the student loans that they offer are more in line with traditional models of lending and borrowing, and private lenders will generally require a credit check in order to determine a potential borrower’s eligibility for private student loans.

This can make your credit score a double-edged sword when it comes to private student loans. Having a high score can mean that you are eligible for very desirable terms, such as low student loan interest rates and a high borrowing limit. However, a low credit score can mean that you will not be approved for the loan, that you will be limited to borrowing less money, and that you may have to accept higher interest rates.

How to Get Private Student Loans With Bad Credit

One way to assuage lenders’ fears when it comes to borrowing private student loans with bad credit is to find a cosigner. A cosigner is a person (usually with a better credit history than you) who agrees to take on the responsibility of repaying the loan if the borrower should fail. If you have a poor credit score or little to no credit history, a cosigner can support you and help you get better loan terms than you would have otherwise been eligible for. If you do not have a cosigner, then your best option may be to exhaust your federal loan options and take some time to improve your credit score before applying for private student loans.

Refinancing Student Loans With Bad Credit

Student loan refinancing is a process that allows people with existing student loan debt to replace their current student loan balance with another one, usually with better repayment terms and lower interest rates. Essentially, student loan refinancing works by having the borrower take out a new loan to immediately repay their existing student debt. That new loan is then repaid on new terms negotiated by the borrower and their lender.

Student loan refinancing is done through private lenders, who may offer refinancing on both, federal and private student loans. For this reason, your credit score is important when it comes to refinancing. A high credit score will make you eligible for lower interest rates and better repayment terms. However, even with a low credit score, it may still be possible to improve the terms of your existing student loans through refinancing as long as the economic background or your own credit score have improved since you first took out those loans. Federal student loan interest rates are fixed, so in economic times of low-interest rates, the refinancing rates available may still be a better deal.

It’s also important to remember that you don’t necessarily have to refinance right away. If you’ve used a student loan refinancing calculator and you’re unhappy with the terms that are available at your current credit score, you can take some time to improve your credit score before coming back to receive better refinancing options.