When I got into graduate school, my parents were thrilled. However, our excitement was dampened when we got our bill for the upcoming semester; I hadn’t qualified for any scholarships or grants, so I’d have to turn to student loans to pay for school.
However, my credit history was nonexistent and I was only working part time. I started to think that I would have to cancel or postpone pursuing my master’s degree.
Thankfully, my mom is a top-notch researcher and helped me find the best student loans for me, even with no credit history. Most private lenders wouldn’t issue me a loan, but I did get enough money from federal loans to cover my costs.
It took a bit more homework to understand my options and federal loan eligibility requirements, but I was relieved my credit history didn’t hold me back from an education.
If you’re a parent and your child has no credit or poor credit, don’t get frustrated. As I found out, there are many options available to help them pay for school.
Best student loans for borrowers with poor credit
When you think about how your kids will pay for school, it’s important to know that there are two main types of student loans: federal and private. Federal student loans are issued directly from the government, while private student loans come from financial institutions such as banks.
Both types of loans can be useful tools to pay for college, but you might be limited in what kinds of loans your child is eligible to receive.
Federal student loans
Federal loans should be where you start. If your son or daughter has bad credit, federal student loans are the closest thing to guaranteed-approval loans.
Federal student loans tend to have lower interest rates and more generous repayment terms than private loans.
Best of all, the government doesn’t consider their credit history when evaluating their application for most federal loans.
These are the two no-credit-check student loans offered by the government:
- Direct Subsidized Loans: If your child is an undergraduate student and can show financial need, they might qualify for Direct Subsidized Loans. These loans are one of the best options available because the government covers the cost of their interest charges while they’re in school, for six months after they graduate, and if they postpone their payments through deferment.
- Direct Unsubsidized Loans: Direct Unsubsidized Loans are not based on financial need. The government doesn’t cover accrued interest on unsubsidized loans, so they can be more expensive overall than subsidized loans. However, they’re still a good option because of their relatively low interest rate — 4.45% as of January 2017 — and federal loan benefits.
Direct Loans are the best student loans available to your child if they have poor credit. To get the funding they need, they must complete the Free Application for Federal Student Aid (FAFSA). The FAFSA is a critical form the government and your child’s school uses to determine what aid they receive, including grants and student loans.
If your child needs help completing the FAFSA online, check out this comprehensive guide that can assist them through the process.
Private student loans
Although private loans can help your child pay for school, they tend to be more expensive than federal loans and don’t offer the same benefits. According to The Institute of College Access and Success, private loan interest rates can be as high as 13.74%.
To put that into perspective, if your child took out a Direct Unsubsidized Loan for $10,000 at 4.45% and repaid it over 10 years, they’d pay back a total of $12,408. But, if they took out a private loan at 13.74% and paid the loan back over 10 years, they’d pay $18,445. The increased interest rate would cost them over $6,000.
|Direct Unsubsidized Loan||Private Student Loan|
|Repayment Term||10 years||10 years|
|Total Interest Charges||$2,408||$8,445|
Although federal loans are the best student loans for those with poor credit, the government does limit how much students can borrow. It may even approve them for a smaller amount than they need to fully pay for school.
If your child exhausted all of their federal loan options and still doesn’t have enough to pay for school, pricier private student loans might be what they need to fill the gap.
However, many lenders have stringent requirements for applicants that include high credit scores. Private no-credit-check student loans aren’t available from most reputable lenders. That means applying for a private loan when you have bad credit can be especially difficult.
One lender that might be a smart option is LendKey. Unlike other lenders, LendKey works with a network of banks and credit unions to offer private student loans. That means when your child submits an application through their website, they’re actually applying to several lenders at once — with just one credit check — increasing their chances of getting a loan.
LendKey doesn’t list the minimum credit score on their website, but because they work with credit unions, your child might be more likely to get a loan with LendKey. Credit unions tend to have more forgiving eligibility criteria than other financial institutions and offer competitive interest rates.
Other private loan options
If your child wants to shop around to compare loan interest rates, there’s another way to get approved.
If your child has poor credit, most lenders will be willing to work with them if they have a qualifying cosigner. A cosigner, usually a parent or relative, is someone with a good income and strong credit history who serves as a guarantee that the loan will be repaid. If you child falls behind on the payments, the cosigner is responsible for making them instead.
Acting as a cosigner can help your child get a loan and receive a lower interest rate than they would receive on their own. In fact, some lenders offer interest rates as low as 3.00% for qualified borrowers. However, becoming a cosigner is a big decision, so make sure you both understand what cosigning entails.
Improving credit history
If you know your child is going to need help paying for school, start researching their federal and private loan options now. They might need more loans to pay for college than the federal government will issue, so improving their credit score is essential to receive the best student loans at a reasonable interest rate.
To get started, share our guide to increasing your credit score with your child.
Need a student loan?Here are our top student loan lenders of 2019!
|1 Important Disclosures for Ascent.
Before taking out private student loans, you should explore and compare all financial aid alternatives, including grants, scholarships, and federal student loans and consider your future monthly payments and income. Applying with a cosigner may improve your chance of getting approved and could help you qualify for a lower interest rate. Ascent Student Loans may be funded by Richland State Bank (RSB). Ascent Student Loan products are subject to credit qualification, completion of a loan application, verification of application information and certification of loan amount by a participating school. Loan products may not be available in certain jurisdictions, and certain restrictions, limitations; and terms and conditions may apply. Ascent is a federally registered trademark of Turnstile Capital Management (TCM) and may be used by RSB under limited license. Richland State Bank is a federally registered service mark of Richland State Bank.
* Application times vary depending on the applicants ability to supply the necessary information for submission.
2 Important Disclosures for CollegeAve.
College Ave Student Loans products are made available through either Firstrust Bank, member FDIC or M.Y. Safra Bank, FSB, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.
Information advertised valid as of 2/1/2019. Variable interest rates may increase after consummation.
3 Important Disclosures for Discover.
* The Sallie Mae partner referenced is not the creditor for these loans and is compensated by Sallie Mae for the referral of Smart Option Student Loan customers.
4 = Sallie Mae Disclaimer: Click here for important information. Terms, conditions and limitations apply.
5 Important Disclosures for SunTrust.
Before applying for a private student loan, SunTrust recommends comparing all financial aid alternatives including grants, scholarships, and both federal and private student loans. To view and compare the available features of SunTrust private student loans, visit https://www.suntrust.com/loans/student-loans/private.
Certain restrictions and limitations may apply. SunTrust Bank reserves the right to change or discontinue this loan program without notice. Availability of all loan programs is subject to approval under the SunTrust credit policy and other criteria and may not be available in certain jurisdictions.
SunTrust Bank, Member FDIC. ©2019 SunTrust Banks, Inc. SUNTRUST, the SunTrust logo and Custom Choice Loan are trademarks of SunTrust Banks, Inc. All rights reserved.
6 Important Disclosures for LendKey.
Additional terms and conditions apply. For more details see LendKey
7 Important Disclosures for CommonBond.
A government loan is made according to rules set by the U.S. Department of Education. Government loans have fixed interest rates, meaning that the interest rate on a government loan will never go up or down.
Government loans also permit borrowers in financial trouble to use certain options, such as income-based repayment, which may help some borrowers. Depending on the type of loan that you have, the government may discharge your loan if you die or become permanently disabled.
Depending on what type of government loan that you have, you may be eligible for loan forgiveness in exchange for performing certain types of public service. If you are an active-duty service member and you obtained your government loan before you were called to active duty, you are entitled to interest rate and repayment benefits for your loan.
A private student loan is not a government loan and is not regulated by the Department of Education. A private student loan is instead regulated like other consumer loans under both state and federal law and by the terms of the promissory note with your lender.
If your private student loan has a fixed interest rate, then that rate will never go up or down. If your private student loan has a variable interest rate, then that rate will vary depending on an index rate disclosed in your application. If the interest rate on the new private student loan is less than the interest rate on your government loans, your payments will be less if you refinance.
If you don’t pay a private student loan as agreed, the lender can refer your loan to a collection agency or sue you for the unpaid amount.
Remember also that like government loans, most private loans cannot be discharged if you file bankruptcy unless you can demonstrate that repayment of the loan would cause you an undue hardship. In most bankruptcy courts, proving undue hardship is very difficult for most borrowers.
8 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|4.23% – 13.23%1||Undergraduate and Graduate|
|4.20% – 11.44%2||Undergraduate, Graduate, and Parents|
|4.84% – 13.49%3||Undergraduate and Graduate|
|4.50% – 10.11%*,4||Undergraduate and Graduate|
|4.25% – 13.25%5||Undergraduate and Graduate|
|5.85% – 6.99%6||Undergraduate and Graduate|
|3.95% – 9.81%7||Undergraduate, Graduate, and Parents|
|4.45% – 12.42%8||Undergraduate, Graduate, and Parents|