Can I apply for student loans with bad credit? Are student loans bad for my credit? What are the available student loans out there for bad credit? Where do I apply for student loans if I have bad credit? 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.
Student loans are a type of financial aid which is made to help students who cannot afford college tuition and education. These loans are custom made for the students and have a lower interest rate and flexibility of repayment terms which would enable the students to repay the amount which is borrowed with less effort.
The federal government and private lenders are the 2 major sources of student loans. Federal student loans generally have a lower interest rate than the private student loans but it might not cover the total cost of the education. These loans aren't sufficient, the private student loan can help you in solving that problem.
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.
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.
Are student loans linked to bad credit?
Is a student loan 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.
What are the types of loans available if I have bad credit and am I eligible?
The types of loans students can choose for financing are between-
Federal student loans
Private student loans
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.
Private loans for bad credit
MPOWER private student loan - 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 private 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
|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.
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 poor or no 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.
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.
Eligibility for Private student loans
The private lenders look for FICO credit score to determine whether you are eligible for the loan or not. The score will let the lender how the repayment of your loan is supposed to be. If the score is higher then it will be easier to borrow money on good terms which also includes the lower interest rate and a longer repayment plan.
Federal loans and private loans typically have limits which put a total borrowing of $75,000 to $120,000 for undergraduate students.
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 it 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 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 and asking for deferment or forbearance when bringing it to the date, it will 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 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.
What credit score do you need for student loans?
The federal government and private lenders are different, all through the students are choosing one of them for their financial needs through loans. Some private loans need a credit score in their application process and it includes almost everyone and borrowers will have a tougher time if their FICO score is lesser than 650.
Can I get a student loan with poor credit?
If you are having a lower credit score then the best option available for your loan is federal student loan as these loans are backed by the federal government and its easy to apply for it. There is no need of what's your credit score if you are eligible for your loans and have applied for the FAFSA.
Can parents with bad credit get student loans?
This a very complicated process if the parents don't have good credit. Despite it, there are several other federal options such as Parent PLUS loans. You can get it by filling the FAFSA application along with your child. This application is for federal aid and it can be found online.
Can I get an instalment loan with poor credit?
The lender of an online installment loan will never likely bother to run a credit check on you. Most borrowers are approved for the loan even if their credit is bad as long as you have an adequate source of income to repay it.
Can I get a loan from a credit union with bad credit?
To get a loan you need to be a member of the credit union first. Many credit unions provide you both the secured and unsecured personals loans. Both the loan types are carried at a fixed rate and you get an exact rate based on the credit score, history, debt, and income. A lower credit score alone is not a necessity to disqualify you from the loan.
Can you get a PLUS loan with bad credit?
Yes, you can get a PLUS loan even if you have a bad credit score. As long as you don't get or have an adverse credit history and have no more than 90 days on the debt, no default and bankruptcies then you will be getting it in no time.
How can I get a loan without a credit check?
For payday loans don't require a credit check but it does have an approval process. You can go to the lender's location, fill out an application and wait for your money. You may also need to give the lender proof of your income which may be a bank statement or paycheck stub. People who use payday loans will usually like it due to its quick cash benefit.
Can you get a Sallie Mae loan with bad credit?
If you are in need of a student loan but you have bad credit or a bad history of credit then your federal student loan is your go-to option. In the case of private student loan, they need an average credit score and it has some strict regulations as most of them require a credit score of 690 and above with a co-signer based on the history of your records.
What is considered a poor credit score?
The credit score generally ranges between from 300 to 850 points in the index based on the scoring system. The higher the number the better your score is.
700 - 850 Excellent credit score
680 - 699 Good credit score
620 - 679 Average credit score
580 - 619 Low credit score
500 - 579 Poor credit score
300 - 499 Bad credit score