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Bad Credit and Student Loans

Education is a path to a brighter future, but for many people with terrible credit, obtaining student loans can seem impossible. Bad credit can result from a variety of factors, including previous financial issues. Having a less-than-perfect credit history, on the other hand, does not have to be a barrier to attaining higher education. There are student loan choices accessible for people with poor credit. In this post, we will look at some of the greatest student loan alternatives for borrowers with negative credit, allowing them to achieve their educational aspirations and build a better future.

Understanding Bad Credit and Student Loans

Bad credit typically refers to a low credit score resulting from late payments, high levels of debt, or other financial missteps. When applying for student loans, a bad credit history can affect the borrower’s eligibility and the terms of the loan. However, there are solutions that cater specifically to individuals with bad credit, allowing them to access the education they deserve.

Federal Student Loans

Federal student loans are often the first choice for students with bad credit. These loans are not based on credit scores, which means that bad credit history does not disqualify applicants. Two types of federal loans, Direct Subsidized Loans and Direct Unsubsidized Loans, are available to undergraduate students regardless of credit history.

PLUS Loans

Federal Parent PLUS Loans and Graduate PLUS Loans are also available options for individuals with bad credit. While these loans require a credit check, the credit criteria are not as strict as those for private loans. Borrowers with adverse credit history can still qualify by demonstrating extenuating circumstances or obtaining a creditworthy endorser (cosigner).

Private Student Loans for Bad Credit

Private student loans from traditional lenders might have stricter credit requirements, making approval challenging for those with bad credit. However, some lenders specialize in providing student loans to individuals with less-than-perfect credit. Here are a few options to consider:

  1. Ascent: Ascent offers student loans with flexible credit requirements. They consider factors beyond credit score and provide options for both cosigned and non-cosigned loans.
  2. Sallie Mae: Sallie Mae offers private student loans that allow borrowers to apply with a creditworthy cosigner. This can increase the chances of approval and potentially lead to better terms.
  3. LendKey: LendKey is a platform that connects borrowers with community lenders offering student loans. They consider more than just credit scores and focus on a borrower’s overall financial profile.

Considerations for Borrowers with Bad Credit

While pursuing student loans with bad credit is possible, borrowers should approach the process thoughtfully:

  1. Explore Federal Options First: Federal loans are more forgiving when it comes to bad credit. Exhaust federal loan options before considering private loans.
  2. Improve Credit Score: Working on improving credit scores before applying for loans can lead to better terms and more favorable interest rates.
  3. Cosigner Option: Applying with a creditworthy cosigner can significantly increase the chances of approval and lead to more favorable loan terms.
  4. Comparison Shopping: If considering private loans, compare options from multiple lenders to find the best terms and rates.

Student Loan Alternatives For Borrowers With Bad Credit

For some borrowers, the high interest rates and strict approval guidelines associated with bad-credit student loans may not be worth it. In this case, borrowers may turn to income share agreements.

Income share agreements (ISAs) give you money for school, then accept a percentage of your monthly income as payment. When you sign up for an income share agreement, you’ll likely receive the following terms:

  • The percentage of your income you’ll owe.
  • The minimum and maximum amount you’ll be required to pay monthly.
  • Your repayment term.
Income share agreements can benefit borrowers with bad credit since most agreements don’t come with strict credit requirements and high interest rates. However, income share agreement payment amounts change based on income. If your income increases or you end up in a high-paying job, you may have to pay back more than what you borrowed through your ISA. Still, the risk could be worth it if you’re having trouble getting approved for other types of funding

Tips for Comparing Student Loans for Bad Credit or No Credit

Having bad credit or no credit doesn’t mean you can’t get a student loan. Undergraduate federal student loans are one option since they don’t consider credit in the application process. The borrowing limits on federal student loans, though, may mean you need to also borrow from a private lender to pay for college.

Here’s what you should consider before you begin applying for loans:

  • Consider federal student loans first. Submit the Free Application for Federal Student Aid, or FAFSA, and first take advantage of any grants or scholarships offered to you. Exhaust any subsidized student loans you qualify for before turning to unsubsidized student loans. Although parents of undergraduate students can also apply for parent PLUS loans to help pay for college, these loans can come with high interest rates. Once graduate students exhaust all unsubsidized federal student loans offered to them, consider graduate PLUS loans. These loans do have a higher interest rate than unsubsidized loans and do require a credit check, but there are specific negative marks the government looks for.
  • Complete loan counseling or get a co-signer. If you learn you have an adverse credit history after applying for a PLUS loan, you can explain the circumstances that led to it. The government could determine you’re eligible for a PLUS loan after receiving loan counseling. Otherwise, another option is to get an endorser, similar to a co-signer, to help you qualify. This process is slightly less rigorous than what you’ll experience during a credit check with a private lender.
  • Compare private loan options. If you have bad credit and no co-signer, lenders that consider factors beyond credit are your best choice. Look at fees and interest rates, which are often higher than what federal loans charge. Prequalify for loans on the lender’s websites to compare the overall loan costs.

Current Student Loan Interest Rates for Bad Credit and No-Credit Borrowers

Most federal loans are available without a credit check, so you can qualify for a loan even if you have poor credit or no credit history. The current rates for federal student loans are as follows:


Loan Borrower Type Interest Rate
Direct Subsidized Undergraduate 5.5%
Direct Unsubsidized Undergraduate 5.5%
Direct Unsubsidized Graduate or Professional 7.05%
Grad PLUS Graduate or Professional 8.05%
Parent PLUS Parents of Undergraduate Students 8.05%

Typically, private student loans require borrowers to have good to excellent credit to qualify for a loan, meaning a credit score of at least 670. Lenders will often approve you if you have a co-signer, but if that’s not an option, some lenders offer loans without a credit check or a co-signer.

Interest rates for bad credit student loans hover between 5.5% and 15%. Having good credit can help you’ll qualify for a lower interest rate. However, borrowers with bad credit will likely receive higher rates.

How To Apply For Student Loans With Bad Credit

Federal Student Loans

If you plan to apply for undergraduate federal loans, you don’t need to do anything different if you have poor credit. Like everyone else, you must submit the Free Application for Federal Student Aid (FAFSA) each year before you can be approved for any federal student loan. If approved, you’ll select your desired loan and sign some final paperwork before the money is disbursed to your school.

However, if you hope to qualify for federal PLUS loans, which are available to graduate students or parents of undergrads, you must submit the FAFSA and an additional PLUS loan application online. PLUS loans also require an “adverse credit” check—this process looks for specific red flags in your history, such as a recent bankruptcy, defaulted loan or tax lien.

If you don’t pass the adverse credit check, you could add an endorser or submit an appeal to gain approval.

Private Student Loans

The process to apply for a private student loan is quite different. Before you start, check your credit to see where your score falls. If you have time, consider taking steps to improve your credit before applying so you’ll have an easier time qualifying.

Next, research and compare private student lenders. Review each lender’s eligibility requirements, interest rates and fees. Note which lenders allow co-signers (if you plan on using one) and which offer co-signer releases, where you can remove the co-signer from your loan once certain conditions are met.

After you have a list of lenders, see which ones allow you to prequalify. To prequalify, you submit a short form that triggers a soft credit check and shows you an estimate of the interest rates and loan terms you could qualify for. This can give you a better idea of what each lender offers.

Once you’re ready to submit an application, both you and your co-signer (if applicable) will need to provide personal and financial information on the form. Most lenders will give you a decision in a matter of minutes or days. If approved, you can complete the final paperwork, and the money will be disbursed.


While bad credit may present initial challenges, it doesn’t have to hinder the pursuit of education. Federal student loans and specialized private lenders offer opportunities for individuals with bad credit to access the financing they need to achieve their educational goals.

Responsible borrowing, improving credit over time, and exploring all available options are key steps toward obtaining student loans that pave the way for a brighter and more prosperous future.

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