You’re searching for a student loan to pay for college, but unfortunately, your credit score isn’t up to par.
Maybe you have a red mark from missing a credit card payment. Or perhaps you don’t have much of a credit history if you just graduated from high school. Since 15% of your credit score is based on the length of your credit history, according to FICO, young people are automatically at a disadvantage.
Whatever the reason for your less-than-stellar score, know that there are student loans for bad credit. Here are your top options, from federal to private student loans.
Federal student loans for bad credit
Before applying for private student loans, check out federal student loans first.
Federal student loans tend to have the lowest interest rates, plus they come with a variety of repayment plans and protections.
Also, federal student loans (with the exception of PLUS Loans) don’t require a credit check. You can consider these viable student loans for bad credit since they don’t have credit requirements.
That said, you need to meet other criteria to be eligible. You need to be a U.S. citizen or qualifying noncitizen, for instance. Plus, you need to be enrolled in a qualifying school.
To access these loans, you have to submit the Free Application for Federal Student Aid (FAFSA). Once you do, you could be eligible for the following three types of loans.
Direct Unsubsidized Loans
Federal Direct Unsubsidized Loans are not based on financial need, so any student can qualify for them.
As of July 1, 2017, all Direct Unsubsidized Loans come with a fixed interest rate of 4.45% for undergraduates and 6.00% for graduate students. For loans disbursed between Oct. 1, 2017, and Oct. 1, 2018, there’s a 1.066% fee.
These loans also come with borrowing limits. Undergraduates can take out up to the following amounts in Direct Unsubsidized Loans each year:
Freshman year: $5,500 for dependent students; $9,500 for independent students
Sophomore year: $6,500 for dependent students; $10,500 for independent students
Junior year and beyond: $7,500 for dependent students; $12,500 for independent students
Graduate students can take out up to $20,500 per year, with a lifetime limit of $138,500. This limit includes any loans taken out as an undergrad. Although these loan limits apply to everyone, the amount you can take out is ultimately up to your college’s financial aid office.
Your financial aid package will tell you how much you can take out, along with any offers for other student loans, grants, scholarships, or work-study. You’re not obligated to take out any specific loan amount.
Before signing on for this debt, make sure to use a student loan calculator to estimate your future monthly payments. Student loan calculators can also reveal how much interest your loans will accrue over the years.
By taking the time to learn the details of repayment, you’ll be better prepared to manage your student loans.
Direct Subsidized Loans
While anyone can take out Direct Unsubsidized Loans, only students with financial need can take out Direct Subsidized Loans. These loans have an advantage over unsubsidized ones because the government covers the interest that accrues while you’re in school.
As a result, your balance upon graduation will look the same as it did when you first took the loans out. The government will also cover the interest if you ever put your loans into deferment.
Direct Subsidized Loans come with a fixed interest rate of 4.45% for undergrads and 6.00% for grad students, similar to Direct Unsubsidized Loans.
The borrowing limits for undergrads are the same for dependent and independent students:
Freshman year: $3,500
Sophomore year: $4,500
Junior year and beyond: $5,500
Graduate students can borrow up to $65,500 in Direct Subsidized Loans. This amount includes any Direct Subsidized Loans they took out for their undergraduate degree.
Like Direct Unsubsidized Loans, you can consider Direct Subsidized Loans as legitimate student loans for bad credit, since they don’t require a credit check.
PLUS Loans for parents or grad students
PLUS Loans typically go to parents, graduate students, or professional students. Although PLUS Loans do require a credit check, the requirements aren’t as stringent as those among private lenders.
Most private lenders, for instance, want to see a good or even excellent credit score. But for a PLUS Loan, all you have to do is show that you don’t have an adverse credit history.
The Office of Federal Student Aid defines an adverse credit history in the following way:
You have debt in the amount of $2,085 or greater that’s more than 90 days delinquent or has been placed in collections within the past two years.
You’ve had a default, bankruptcy, foreclosure, repossession, tax lien, wage garnishment, or write-off of federal student loans in the past five years.
PLUS Loans don’t necessarily call for an amazing credit score; they just require that you haven’t had any major financial issues in the past few years. If you do have a history of default or bankruptcy, you can still qualify for a PLUS Loan by applying with a creditworthy endorser.
If you qualify, you can borrow up to the cost of attendance minus other financial aid.
Private student loans for bad credit
Although the government is a great source of student loans for bad credit, you might find yourself unable to cover the full cost of attendance.
If you still have a gap in funding, you could consider a private student loan. Private student loans get tricky, though, because they typically require decent credit.
Most private lenders run a credit check, where they consider your income, debt-to-income ratio, and history of debt repayment.
If you have poor or no credit history, you’ll be hard-pressed to qualify for a student loan on your own. That said, you can apply with a creditworthy cosigner, such as a parent.
According to data firm MeasureOne, 94% of undergraduate students applied for a private student loan with a cosigner in the 2015-2016 academic year.
So while most private lenders don’t offer student loans for bad credit, these lenders do offer some of the most competitive terms and easiest application processes:
Along with these lenders, you might also search for student loans from credit unions or even your college. Some lenders allow you to apply for a quick rate quote, so you can get a sense of preliminary offers before submitting a full application.
By shopping around, you can find the loan with the most competitive interest rate, as well as flexible repayment terms and good customer service.
Once you start repaying your student loan, your on-time payments will help build your credit score. In the meantime, check out some proactive steps you can take to build your credit.
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|