Do you need a good credit score to get student loans? Well, the answer depends on what type of student loan you’re borrowing with.
Federal student loans don’t have credit requirements for students. But if you’re turning to private student loans to finance your education, you’ll need a good credit score.
Many students might not know what their credit score is or whether it’s good enough to get a private student loan on their own. Let’s explore what lenders look for in an application, including the kind of credit score they want to see before approving a private student loan.
What is a good credit score for student loans with a private lender?
First off, you need to know what your credit score is. There are a few options to check your credit score for free. Credit Karma and Credit Sesame are among the most popular.
But that credit score is just three digits — you’ll have to know more to figure out if your credit score is high enough that you’ll qualify for a private student loan.
Generally, you’ll need a credit score in the mid-600s or higher to qualify for a private student loan. Your chances of approval will increase if your FICO score is 690 or higher. Plus, you’ll start qualifying for lower interest rates at around 720.
However, different lenders have different credit score requirements for private student loans, which aren’t always advertised. The best way to know if you’ll qualify for a private student loan with a specific lender is to complete an application for a rate check.
Lenders usually can perform a soft credit check to generate a rate estimate, but some might not. So double-check whether it’s a soft or hard credit inquiry before you allow the lender to perform it. If it’s a soft inquiry, it won’t affect your credit score.
Once the lender figures out whether you qualify, it will list out all the rates it can offer you.
Are there other eligibility requirements for private student loans?
You’ll need more than a good credit score to qualify for a private student loan.
Lenders want to see that they can legally lend to you and that there’s a good chance you’ll repay your student loans.
On the legal end of things, you must:
- Be a U.S. citizen or legal resident
- Be 18 years old or older
- Use student loans only for educational expenses
- Show that you’re enrolled at least half time in an educational program that qualifies
Then there are the financial and employment requirements for private student loan borrowers.
Lenders look at the following factors to try to gauge if you can afford to repay your student loans:
- Credit history: Besides your credit score itself, lenders will look at your credit report for derogatory remarks, such as late payments, bankruptcy, and delinquent accounts. They’ll want to see a mix of credit accounts with histories of on-time payments.
- Employment and income: Not all students have a job. But if you’re a student who has one, it can improve your chances of approval. Most lenders will ask for proof of employment and income, such as a recent pay stub.
- Debt-to-income (DTI) ratio: Lenders also will compare your income to your monthly debt costs to make sure you can afford additional payments. They usually want to see a DTI of 28 percent or lower — use our calculator to estimate your own DTI. Many lenders will consider your housing costs (rent or mortgage) as well.
These requirements for private student loans pose a problem for many students. Although they are the borrowers who need private student loans, students are less likely to meet the requirements outlined above.
Many college students, particularly those working toward an undergraduate degree, have a limited credit history and a credit score that’s too low to qualify. It’s also common to work only part time or not at all while in school.
That’s where a co-signer can help.
What about applying with a co-signer?
The reality is most college students can’t meet the credit score, income, or other requirements lenders set. But that doesn’t mean private student loans aren’t an option.
One solution is to apply for private student loans with a co-signer. By doing so, you can:
- Get the good credit of a parent or other co-signer
- More easily qualify for the loan
- Get better interest rates
About 90 percent of private student loans are borrowed with the help of a co-signer, according to a Consumer Financial Protection Bureau (CFPB) report.
Not only are co-signers common, but some lenders, such as CommonBond, don’t accept private student loan applications without them. Other lenders, such as Citizens Bank, allow borrowers to apply with a co-signer if they don’t meet credit and income qualifications on their own.
If you do apply with a co-signer, make sure you understand how the arrangement works.
As the primary borrower, you will be expected to make monthly payments, but your co-signer is equally responsible for repaying the loan. If you don’t repay the loan, your co-signer will have to.
Also, any late or missed payments will damage both your credit and your co-signer’s credit.
Don’t forget to find out if your lender offers a co-signer release and under what terms. Citizens Bank, for example, allows a primary borrower to release a co-signer after making 36 on-time monthly payments.
Do lenders view graduate students differently?
If you’re a graduate student, you might have an easier time securing private student loans. That’s because, per the CFPB, “as a graduate or professional student, you might be more certain of your job prospects and earning potential.”
Graduate students also are more likely to have an employment history of high salaries, especially if they spent a few years working after completing their undergraduate degree. They tend to have longer credit histories as well, allowing lenders to get accurate insights into the applicant’s financial management.
Additionally, several lenders offer private student loans specifically to graduate students that carry different requirements. CommonBond, for instance, requires a co-signer for its general undergraduate and graduate student loans. However, it has no such requirement for its MBA loans.
Many lenders offer student loans specifically for students in MBA, medical, dental, law, or other graduate programs that can lead to high-paying careers.
Bottom line: Good credit is required for private student loans
It’s a smart idea to utilize federal student loans first, as they don’t have a credit requirement. But private student loans can be an important tool to fill in gaps in college costs. You or a co-signer must have a good credit score to get student loans from a private lender.
If you need student loans now, enlisting a co-signer is the way to go. But it’s never too early to start building credit and improve your chances of qualifying for student loans in the future.
Need a student loan?Here are our top student loan lenders of 2018!
1 = Citizens Disclaimer.
2 = CollegeAve Autopay Disclaimer: All rates shown include the auto-pay discount. The 0.25% auto-pay interest rate reduction applies as long as a valid bank account is designated for required monthly payments. Variable rates may increase after consummation.
* 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.
3 = Sallie Mae Disclaimer: Click here for important information. Terms, conditions and limitations apply.
|3.54% - 12.07%2||Undergraduate, Graduate, and Parents||Visit CollegeAve|
|4.11% - 12.19%||Undergraduate and Graduate||Visit Ascent|
|4.00% - 11.85%*3||Undergraduate and Graduate||Visit SallieMae|
|2.93% - 9.67%||Undergraduate, Graduate, and Parents||Visit CommonBond|
|3.80% - 11.99%1||Undergraduate, Graduate, and Parents||Visit Citizens|
|4.53% - 9.69%||Undergraduate and Graduate||Visit LendKey|