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 influences offered interest rates, repayment periods, and the total amount of money lenders may lend you. 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 bypass credit checks, while others assess eligibility based on your credit score through a check. 

How Your Credit Score Affects Loan Eligibility 

Whenever a lender offers a loan, they’re taking on a risk. It’s a calculated risk that the borrower will repay the loan in a timely manner, according to the terms negotiated. 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 could 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, there are two types of student loans: federal and private student loans. The federal government, through the Department of Education, offers federal loans. Most Department of Education loans, including direct subsidized and unsubsidized loans, don’t consider credit scores. 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. The amount you can borrow isn’t determined by your credit score but by the school’s cost of attendance. However, 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 originated and administered by private lenders, such as banks and credit unions. These lenders also deal in loans not typically reserved for students, such as personal loans, business loans, and mortgages. Therefore, private lenders typically require a credit check to assess eligibility for student loans, aligning with traditional lending practices. 

This can make your credit score a double-edged sword when it comes to private student loans. A high score can qualify you for favorable terms like low student loan interest rates and a high borrowing limit. However, a low credit score can result in loan denial, reduced borrowing limits, and 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. It’s important to note that by refinancing any federal loans you have, you will lose access to those federal benefits. Be sure to carefully consider your options.  

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 available terms at your current credit score, you can take some time to improve your credit score before coming back to receive better refinancing options.