You must be wondering if you can apply for student loans with bad credit. The answer is, yes. Not everyone has a good credit score. But we firmly believe that a bad credit history should not hamper your journey to the right college so we’ve come up with a way on how you can get a student loan even if your credit score isn’t that great. We’ve also listed where you can find these loans.
Private student loans for students with bad credit are very hard to get, but it is possible. Despite getting a student loan, you are required to apply for the loan with a co-signer who has a great credit score. With their good credit, you might get help to offset the bad credit of yours. However, you can get a Federal loan if you have a bad credit history, as it doesn't require a credit check.
In addition to this, some lenders don't go on the FICO score alone where you need to make certain approvals. They will also look into your credit history and consider it while evaluating the potential borrower's loan application.
Table of contents
- Are student loans linked to bad credit?
- Federal student loans
- Private student loans for bad credit
- Comparison between ASCENT and MPOWER
- How do I avoid bad credit?
- Can I improve my credit score?
- Paying off the loan in advance
Are student loans linked to bad credit?
You must be wondering if a student loan is bad for your credit. Well, student loans can have either a positive or negative effect on your credit score depending on how you go about paying the installments.
Depending on how bad you defer from a scheduled payment, it can directly affect your credit score. Handling your repayment method is key to manage a good credit score. There are many student loans available for the ones who have a bad credit score.
What are the types of loans available if I have bad credit and am I eligible?
The types of loans students with bad credit can choose are -
Federal student loans
Private student loans such as Ascent and MPower
Let us discuss in detail how you can avail these loans in spite of having bad credit.
Federal student loans
Federal student loans can be obtained by students who have bad credit as federal loans do not need a credit check. Often people with bad credit will eventually pay higher loan rates. These students can receive direct subsidized or unsubsidized loans which can meet the educational expenses for students, based on the financial need or otherwise.
Looking for extremely low-interest-rate loans?
Certain need-based loans such as Subsidized loans have an extremely low-interest rate and it is also subsidized which means that the government will pay the interest which is accrued on the loan while you are still in the school.
1 - Direct Unsubsidized Loans
Federal Direct Unsubsidized Loans are based on the need for support for education which students can qualify for.
Interest rates in the past
As of July 1st of 2017, all the Direct Unsubsidized Loans will come with an interest rate of 4.45% for undergraduates and 6% for graduate students which are distributed between October 1st of 2017 and October 1st of 2018, and there is a fee of 1.06%.
The loans are limited for the borrowers, based on the Undergraduate levels where they can take out up to the following amount -
Freshman year - $5,500 for a dependent student and $9,500 for the independent students
Sophomore years - $6,500 for dependent students and $10,500 for independent students
Junior and beyond years -$7,500 for dependent students $12,500 for independent students.
Graduates students can take up to $20,500 for each year with a total limit of $138,500. This limit includes any loans that are taken out as an undergraduate student. Although these loans are available to apply for everyone, the amount which is taken out is ultimately depends on the college's financial aid office.
How much do I take out as a loan?
The Office of Financial Aid will let you know how much of the amount you can take out with any of the offers that the student loans, grants, scholarship or work-study program have.
Before getting into the debt, make an estimate of your future monthly payments so you can try on it and get to know how to manage the same.
2 - Direct Subsidized Loans
The Direct Unsubsidized loans are available to everyone and can be taken out easily, whereas the Direct Subsidized loans can be taken only by students who are in a financial need. These loans tend to have advantages over the unsubsidized one since the government covers the interest which accrues when you're still in school.
Deferment and the rates
The balance of your loan on graduation will mostly look the same as it was when you took your loan out first. The interest will be covered by the government if you ever put the loans under deferment.
They will come with an interest rate of 4.45% for the undergraduates and 6% for the graduate students.
The limit for the undergraduates is similar to the dependent and independent students.
Freshman year should get up to $3,500
Sophomore year can get you up to $4,500
Junior year and beyond $5,500
The graduate students can borrow up to $65,500 under Direct Subsidized loans. This amount includes any of the Direct Subsidized loans if they have taken out any for the undergraduate degree.
3 - Direct PLUS loans for Parents or Grad students
Direct PLUS loans are directed towards the parent, graduate students or professional students even though the loans require a credit check and the requirement are strict between the private lenders.
What do I need for this loan?
A large number of private lenders want to see a good or even excellent credit score. For these loans, all you have to do is state that your credit history is favorable.
These PLUS loans do not necessarily call for an amazing credit score, they just require that you haven't made any major financial issues in the past 5 years.
Eligibility Requirements for Federal Direct Student loans
A U.S. citizen or eligible citizen who needs to fill out a FAFSA
Subsidized loans are available for students who have expressed financial needs
The duration of the loan terms will be between 10 to 25 years
The loan amount can go up to $31,000 in total for undergraduates who have received financial support from their parents
Whereas, it can be of up to $57,500 in total for undergraduates who don't have parent support
The repayment is provided under the four income-driven repayment plans
The payments can be postponed for a period of 3 months
If you are unemployed the interest will not be accrued in the case of subsidized loans while you are in school
It provides you a period of 6 months of a grace period
Federal direct loans generally offer generous repayment flexibility and the lowest fixed-interest rate that you can find.
Private student loans for bad credit
There are only a few private student loans that are provided for the bad credit and it has very rigorous criteria. The student loans you are borrowing must have a co-signer who needs to have a strong credit history in order to sign you up. They can be your family members or a relative or a friend who has a good credit history.
You can always get in connection with the private lenders who can help you in granting this type of loan and utilization of these private loans to pay it for the college.
Where do I get a private loan?
Though most of the private lenders don't offer student loans for bad credit, there are only hand-picked organizations and companies which provide you loans with most competing terms and easy processing of an application.
You can always search for student loans from credit union or college, where some lenders allow to apply for a quick rate quote, so you can get a sense of preliminary offers before getting into it. Once you start to pay your payments on the student loans on time, it will help you to build your credit score.
MPOWER offers student loans for both juniors and seniors as well as graduate students and is the best option for international students. It is also a great option for students with deferred action for childhood arrivals, or DACA, status. Here are some of the features of MPOWER student loans -
Higher fixed interest rates than other student loans
No requirement for a co-signer or US credit history
Interest-only payments required while in school and during 6 month grace period
Ascent student loans
Ascent is an online lender that provides two options for their borrowers. The options being, the borrower can take a traditionally co-signed loan and another aimed at borrowers who don't have a credit history, co-signer, and income. Here are some features of ASCENT private student loans:
Generous forbearance options
Multiple repayment options offered included interest only,flat-free and deferred
Provides an option for borrowers without credit history or cosigner
Comparison between ASCENT and MPOWER
Following table shows the comparison between the two companies on the basis on the loan term, amount and more.
|Loan term||5 to 15 years||10 years|
|Loan amount||$2,000 to $200,000||$2,001 to $50,000|
|Grace period||6 months||6 months|
|Reviewed loan||Co-signed and non-cosigned private student loans for undergraduates||Private loans for juniors and seniors|
Are they a good option?
A Federal loan is a great option for people for bad credit but you will find it at the end that you are unable to cover the cost of full attendance. There is a gap in these findings whether you should consider a private student loan where it gets tricky, though as it will typically require you for a decent credit to get it. Hence, these two can be good options for you.
Debt to Income Ratio
When most of the private lenders run a credit check they look for debt to income ratio and history of debt repayment. If you have no poor or credit history then you will be qualified for the student loan by yourself. If you are little held back you can apply with a creditworthy co-signer, like parents for instance.
The curious case of credit history and private lenders
Many students cannot get qualified for private loans as they don't have a good credit history. The common solution for it is to find a co-signer who agrees to pay the loan of yours if you fail to make on-time or the regular payments. These can be a parent, family members or friends with good credit.
You also need to meet all of the financial requirements where the borrower should not have a default in private or government student loans which might have no defaults of 60 days or more in the past 2 years.
If there is unreported bankruptcy in the previous 5 years, no charge-off (or) collection accounts over $100 and no unsatisfied repossession, tax liens, foreclosures or garnishments by the creditors, you might need to meet the minimum credit required standards to be determined as the ascent.
Factors in focus
They not only focus on the credit it also estimates your application which is based on factors such as earning potentials, major and attendance in the school. You will be receiving around 24 months of forbearance if you are having trouble in making the payments which are during the interest which will continue to accrue.
It is available to juniors, seniors without an income, credit history or a co-signer where you must be a U.S. citizen or a permanent resident in order to qualify
The duration of the loan term is around 10 to 15 years based on the availability of the variable rate of loans
The total amount that you can borrow is around $2,000 up to $200,000 throughout the school
The repayment options are deferred once you start to make the payments in full for a period of six months after leaving school
The grace period is said to be around 6 months.
How do I avoid bad credit?
1 - Paying off the loan in advance
Paying off a loan before time may undermine your credit score. Educational loans need to be repaid in installments and making payments on time will help demonstrate you as a reliable borrower. If you are paying off the loan in advance and you no longer have the installment debt, you will be losing evidence of being an on-time payer and it could lower the score.
2 - Deferment or forbearance
Not making the payment on time will definitely damage your score. If you are having trouble making payments and asking for deferment or forbearance when bringing it to the date, it will help you to improve the score. Student loans are dischargeable, even if you file for bankruptcy it will most likely get excused and so not repaying will really affect your score.
2 - Look out for the grace period
You can increase your score by making the interest payment on the student loans when you are in school. They also have a grace period of 6 months after graduation. If you start your payments earlier you will get a positive score.
4 - Watch out for default
The most important and significant factor in college loans is not to make it go into default. This can ruin your credit score and will make you stay on it for several years. It will be better to ask for a free credit report every year to make the payment are being correctly paid to the education loans.
Can I improve my credit score?
If you are in no need for private loans instantly then you can delay applying for a loan by a few months and work on improving your credit score. You should request a copy of your credit report, revise them and check for any errors.
Here are some of the ways you can improve your credit score -
Stay on top of any upcoming payments. Making timely payments is the key to improving your credit score
Keep a check on your credit utilization rate. Your ideal rate will depend on the scoring system used
Look out for any score boosting programs available which you can take advantage of
Reducing the total debt level and giving it for consecutive months on-time payments will also boost your score. If you have no credit at all then you can rebuild it for good by applying on your own.
Paying off the loan in advance
Paying off a loan before time may undermine your credit score. Educational loans need to repaid on installments and making of payments on time will help you demonstrate you as a reliable borrower. If you are paying off the loan in advance and you have no longer the installment debt, you will be losing evidence of being an on-time payer and it could lower the score.
Is forbearance and deferment on loans bad for my credit score?
Not making the payment on time will definitely damage your score. If you are having trouble making payments then asking for deferment or forbearance can help you improve the score. Student loans are dischargeable, even if you file for bankruptcy it will most likely get excused and so not repaying the amount will really affect your score.
Is refinancing student loans bad for my credit score?
There are certain pros and cons for refinancing a student loan and based on the individual standpoint we can decide whether the benefits outweigh the drawbacks offered by refinancing.
Refinancing is nothing but taking a loan from a private lender with a lower interest rate to repay an existing loan. This could prove beneficial if the refinanced loan has a lower interest rate. But it should be noted that there are some drawbacks associated with refinancing a loan some of them are:
If you refinance a federal student loan then you lose the repayment options provided by the federal government as most of the loans are provided by private lenders.
Refinancing with a private lender makes you lose your eligibility for Federal loan forgiveness programs.
Interest rates have been at historic lows so if the objective is to try and get a lower interest rate it may not be fruitful. Even if you do manage to get a lower interest rate the amount you save when divided by the loan duration does not seem to be that profitable.
Thus with the various types of loans discussed we shouldn’t think twice before judging how badly a student loan can affect our credit score. Bad credit shouldn’t stop you from going for a student loan there are ways to get around the bad credit and most importantly there are sources where you can redeem a student loan without much attention to the credit score in hand. If you have time always work on improving your credit score.
Will Sallie Mae give me a loan with bad credit?
Sallie Mae, however, will assign you a term. No loan pre-approval. Private student loans require a credit check. Some lenders will do a soft credit pull, which doesn't hurt your score, to determine if you can qualify for a loan or need a cosigner and to show you estimated interest rates if you qualify.
Can I get a student loan with bad credit and no cosigner?
It's going to be difficult but there are a few options available. Some federal and private student loans offer a loan without a co-signer. a co-signer is usually needed when the borrower has a low/bad credit score with little to no income.
Can you be denied student loans because of bad credit?
Yes, you can. If you have bad credit you should consider signing with a co-signer to help improve your chances of getting approved.
Why are student loans denied?
Student loans are not an asset-backed security, most borrowers are denied loans because of a lack of employment history, income or poor credit.