Best Student Loans for Bad Credit | Find the Best Loan for You | US News

Your credit history doesn’t need to be a barrier between you and your education: Even borrowers with bad credit or no credit can find student loans. You may not even need a co-signer, although the backing of someone with good credit may improve your chances of approval and your interest rate.

This guide will tell you everything you need to know to help you qualify for a student loan with less-than-perfect credit.

Getting a student loan is harder with bad credit. You must consider all of the usual factors, such as interest rates and loan limits, as well as others specific to your situation.

Here are the most important criteria when selecting student loans for bad credit:

If you have bad credit, being strategic about the student loans you apply for is important. Because applying for several loans in a short time period can hurt your credit score, target lenders that you think are the best fit for you. Funding U and Ascent, for instance, offer private student loans and look at factors such as GPA, major and graduation date when borrowers can’t qualify based on credit and income.

Whether you want a private student loan or a federal loan, you can apply for many of them online. When you do, you will need to provide personal information, such as your address and Social Security number or alien registration number. If you’ve lived at your current address for less than one year, you will also need to list your previous residence.

The application will ask about your school and your degree, as well as any financial aid or scholarships you expect to receive. Have your federal tax information or tax returns ready, and be prepared to provide details about bank accounts, investments and monthly mortgage or rent payments. You will also need to name two personal contacts who are not your co-signer, if you have one.

Before you apply for a student loan, though, you will need to decide how much you want to borrow. Estimating your educational expenses, including tuition and fees, housing, food, and books, can help you do this. Also, your financial aid award letter should include your school’s one-year cost of attendance.

You can then start by applying for federal student loans – having bad credit or no credit will not disqualify you. Federal loans, except for Direct PLUS loans, don’t take your credit history into account, making them better options for applicants with bad credit.

They also tend to offer lower interest rates and greater repayment flexibility and forgiveness options than private student loans. Federal loans don’t require payment until after you graduate, leave school or decide to enroll less than half-time, but many private lenders will expect payment while you’re still in school.

You’ll need to complete the Free Application for Federal Student Aid, or FAFSA, at fafsa.gov or on the myStudentAid mobile app to be considered for federal loans, grants or work-study awards. The application becomes available each October for the following school year, but every school and state has its own FAFSA deadline.

Make sure you meet not only the federal filing deadline but also state and college FAFSA deadlines because aid is limited. Most state deadlines can be found at the FAFSA website, but also check your school’s website for deadlines.

You should receive a financial aid award letter in mid-March to April if you are a regular decision applicant. Your college will explain how to accept all or part of your aid.

“If federal loans aren’t an option or you’ve exhausted your federal loans, then consider applying for a private loan with a co-signer who has good credit,” Ashton says.

Having a co-signer who will make payments if you don’t can help you get a good interest rate with a reputable lender, he says. Still, make sure you shop around for the best offer. You might only be approved for high-interest loans, or your application could be rejected, depending on your credit score.

When applying for private student loans for bad credit, the most important factors to evaluate are the repayment period and interest rate, says Josh Simpson, financial advisor with Lake Advisory Group. Many private student loans will need to be paid while you’re in school, but some lenders may offer deferred payments.

Some may allow you to defer payments for six months after you graduate or when you enroll less than half-time. Ask lenders about their repayment options.

If your loan is approved, the next step for all private and federal loans is school certification. During this process, the school confirms your cost of attendance, financial aid eligibility and other loan details. Your school also checks that your loan amount isn’t more than the total cost of attendance, minus any loans or other aid you’ve received.

Certification will include your school setting a date to receive the money. The entire process typically takes seven to 10 days but can be longer, depending on time of year and school.

If you have bad credit and know you will need a student loan, improving your credit score before applying is a good idea. Luckily, there are many ways to build your credit and boost your score.

But this won’t happen overnight. If you have no credit, you will need at least six months of credit usage to generate a FICO credit score, according to FICO, the credit analytics firm.

A score damaged by serious misuse, such as a foreclosure or bankruptcy, can take years to recover. On the other hand, a poor credit score could improve to fair with only 12 months of responsible use.

Whether you are trying to raise your credit score or build credit history, these expert-recommended strategies can help before you apply for a student loan:

“Finally, it’s important to keep an eye on your credit report to ensure the credit agencies have accurate information on your balances, number of credit lines,” she says. “Inaccuracies can hurt a credit score.”

The three national credit bureaus – Equifax, Experian and Transunion – are offering free weekly credit reports through April 2021 to help you monitor for errors and signs of fraud during the coronavirus pandemic. You can access them at AnnualCreditReport.com; previously, you could get one free credit report yearly from each credit bureau.

“Request your reports throughout the year and review for any errors,” Pal says.

If you think you spot an error on your credit report, you will need to dispute the information by contacting both the credit bureau and the creditor.

You can get a student loan without a co-signer if you have bad credit or no credit – most federal loans do not require a co-signer – but private loans often do.

Unlike need-based federal loans that are funded by the government, private student loans from banks, credit unions and online lenders require a credit history to prove that you can pay back the debt. Many students have thin or no credit histories, which makes approval difficult for private loans.

A creditworthy co-signer on a private loan can help your chances of approval and secure a better interest rate than you would on your own.

If you don’t want a co-signer on your student loan permanently, look for a loan with a co-signer release. This would allow you to release your co-signer from the loan after you meet certain requirements, such as making a certain number of on-time payments.

Borrowers with no credit can get student loans, Simpson says. Federal student loans are the best choice because they don’t require a credit history.

But, adds Ashton, “They have limits on how much you can borrow.”

Federal loan limits depend on the type of loan, as well as your year in school and your dependency status. Generally, graduate students can borrow more than undergraduates: Annual loan limits range from $5,500 to $12,500 for undergraduates and $20,500 for graduate students.

Private student loan limits depend partly on your credit score and vary by lender. Citizens Bank, for instance, limits undergraduate loan amounts to the full cost of your education, up to $150,000 total. Meanwhile, PNC caps loans at $50,000 annually, with a maximum aggregate educational debt of $225,000.

Most lenders require a credit score of 650 to 670 for a private student loan, but some don’t have a minimum credit score. Instead, they base credit decisions on several factors, such as debt-to-income ratio, earning potential or household income.

Parents who want Direct PLUS loans won’t need to meet a credit score minimum but cannot have an adverse credit history. That means you can’t have debts that are 90 days or more delinquent or in collections, among other credit mistakes.

Applying for a private student loan will lower your credit score, but the damage should be minimal and temporary, as long as you don’t apply for too many loans at once. A new loan results in a hard inquiry on your credit report, which means a creditor has requested to review your credit file to assess your risk as a borrower.

“Having too many hard inquiries in a short amount of time can decrease your score,” Block says.

But one or two inquiries per year, she says, should not significantly affect your credit score. For most people, one credit inquiry will drop your FICO score by less than five points. That’s different from applying for several credit cards and a loan in one week, which may indicate financial problems.

The stronger your credit history, the better your credit score will tolerate a credit inquiry. Your score will bounce back within a few months if everything else in your credit history remains positive.

If your credit is less than perfect, the effect of inquiries will still be short term. Inquiries remain on your credit report for two years, but FICO scores only consider the ones from the last 12 months.

Not all student loans require a credit check. “Federal student loans don’t take credit history into account like private student loans do,” Block says.

This means that applying for a federal student loan won’t result in a hard inquiry on your credit report. Parent PLUS loans are the exceptions.

If you can’t get enough federal help to pay for college, then consider private student loans. Adding a co-signer should help you qualify for a loan and pay a lower interest rate than you would on your own, Block says.

Private lenders may use a soft credit inquiry to preapprove student applicants. Soft inquiries, unlike hard inquiries, will not hurt your credit score. That said, a poor credit history will affect your chances of approval.