Getting a Student Loan with Bad Credit

By Eric Rosenberg
Reviewed by: Lauren Bringle, AFC®
Published on: 05/23/2019

College is expensive. If you are able to get through school without debt, you will be much better off in the long-run.

But if, like most people, you do need to borrow, the type of loan you need could be influenced by your credit score.

So what are your options if you need student loans for bad credit? We are here to break it down for you.

Do all student loans require a credit check?

There are multiple kinds of student loans, and not all require any specific credit history or credit score. It depends on the kind of loan and where you get it.

When applying for a college degree, you should also complete the FAFSA, or Free Application for Federal Student Aid. The FAFSA is used to judge your financial need when it comes to loans and grants from the US government. Qualifying for federal student loans via the FAFSA process does not require any specific credit score. It is all based on financial need.

If you qualify for the maximum federal student aid or feel that you need to borrow beyond the aid package offered, you may need to borrow from a private student lender that does look at your credit. Some federal student loans are subsidized, which means the government pays a portion of the interest to keep your rate low. Private loans and other federal loans are unsubsidized, which means you pay for the entire cost of the loan.

Private student loan lenders are sure to check your credit

If you are looking for student loans with no credit score, a private lender may be an option. Private student loans are student loans from banks and nonbank lenders intended to help pay for college. But unlike a federal loan, which has a limited interest rate and is backed by the government, a private student loan is only backed by you.

Each private lender has its own rules and requirements for approving a new private loan. Some do allow you to get a loan with no credit or bad credit. Others may require you to add a cosigner (see our related article about how cosigning affects credit to overcome deficiencies in your credit history, which could include not having any credit or having poor credit.

If you have a series of late or missed payments on your credit report, private lenders may see you as a bad risk and might be hesitant to approve you. But if you are approved with bad credit or no credit, your loan may have higher interest rates.

Adding a cosigner can help with private student loans

From the biggest online student lenders like Sallie Mae to smaller, online-only lenders, you will probably find a minimum credit score required for a private student loan. Some lenders require a minimum credit score around 600 to 620, while others may require even better credit.

If you fall short of that milestone, you may be able to qualify by adding a cosigner. Even if you do qualify on your own, adding a cosigner may help you get a lower interest rate. That only works if the cosigner has better credit than you.

Be aware, however, that asking someone to cosign a loan is a big deal. If someone signs on with you, they are taking on full responsibility to repay the loan if you stop. They also attach their credit score to the loan, and missed payments during the loan term can harm their credit a lot more than yours depending on where your credit scores stand today. As a student borrower, it’s important that you stick to a repayment plan for whichever loan option you choose.

This is why a parent is the most common cosigner for a student loan. A parent may also get the entire loan rather than put the burden on their kids. But student loans are some of the most difficult to discharge or have forgiven, even in bankruptcy.

Alternatives to private student loans

Before you go down the road of student loans, you should look at other types of financial aid that could help offset the cost of education. The best place to start is with scholarships and grants, since you don’t have to pay them back.

I graduated with an undergraduate degree thanks to several scholarships, primarily one from the Boy Scouts of America. I picked up about $40,000 in student loans during graduate school, but I’ll be forever grateful to the Denver Area Council and donor John Madden for the amazing scholarship I earned.

My point is, there is a scholarship out there for just about any group, skill or interest. In fact, Self offers a college scholarship of its own for aspiring entrepreneurs. I applied to dozens of scholarships that helped pay for my education. The Scholarship System is a great resource to learn more about finding enough scholarships to cover an entire education without any loans, or minimizing them as much as possible.

You can also look into work-study programs at your school. During grad school, I worked full-time while going to school full-time to pay for as much as I could while in school and minimize what I borrowed. Finding the right balance between work, school, scholarships and loans is the most realistic way for many people to pay for school.

Another perk of a job: some employers will contribute to your education directly. Some forward-thinking employers offer student loan assistance as an employee benefit. If you have a job, check with your human resources department to see what’s available.

Establishing credit and repairing bad credit

If you have no credit or bad credit, there's hope. Establishing credit may only take a few months if you are starting from scratch. A credit builder loan from Self (also available at some local credit unions) is an option to establish credit, as are secured credit cards and some student credit cards.

Once you get a new loan account that is reported to the credit bureaus, it should take about six months for a credit score to appear on your account. In some cases, you'll get a score as quickly as two or three months after you’ve signed up for a loan program. Make sure to always pay on time from the start to build a positive credit history.

If you have bad credit, turning it around is a bit harder. If you can pay off any outstanding balances and keep an on-time payment history going forward, those are big steps in fixing your credit. Establishing a new credit line with a perfect payment history can also help.

Unfortunately, there is rarely a quick and easy fix to bad credit. But with good habits and the right focus, anyone can repair their credit.

Keep a long-term focus on credit and student loans

Getting student loans is a lot easier than paying them off, even if you have an excellent credit score and qualify for the best rates. The burden of large monthly payments causes many borrowers to delay buying a home, getting married, starting a family, and other big life milestones. It would be a shame to take on this expense unnecessarily.

As a student borrower, your credit can be a big factor in getting student loans and can help decide the rate you pay. Depending on the size of your loans, good credit can save you many thousands of dollars in interest expenses. And don’t forget about keeping to a tight budget while in school to save on costs like student housing.

Now that we’ve answered the question, “Can you get a student loan with bad credit?” it’s time for you to make a decision. It's best to avoid student loans when you can. But if you can't, your credit score is an important tool in getting the best loans possible.

About the author

Eric Rosenberg is the mastermind behind the Personal Profitability blog and podcast. He has both an undergraduate degree and a MBA in finance and his work has appeared in various media outlets. See Eric on Linkedin and Twitter.

About the reviewer

Lauren Bringle is an Accredited Financial Counselor® with Self Financial– a financial technology company with a mission to help people build credit and savings. See Lauren on Linkedin and Twitter.

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Written on May 23, 2019
Self is a venture-backed startup that helps people build credit and savings.

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