The rising cost of college tuition has created a world in which many college students have to seek out loans for school. The problem is, sometimes federal loans aren’t enough. And private student loans are awarded in part on credit and income, two things most college students have had time yet to build.
It’s a good idea to look at federal student loans before private student loans.
The short story is that it isn’t easy to get a student loan with bad credit. Students with bad or no credit looking for private student loans might be better served finding a cosigner with a strong credit history.
When it comes to credit approvals, no credit and bad credit might look similar — at least in the sense that both statuses can look potentially risky to lenders. In an effort to find options that exist outside of federal loans, we’ve examined top national student loan lenders to find all of the best student loans for bad credit, if any, exist.
The search brought up a few interesting findings. One such finding is that few lenders publicly publish their underwriting criteria. Of the national lenders, only three explicitly stated credit score minimums. Of those, two of the minimums fell in the “good” credit range for FICO scores. Only one lender went as far as allowing a minimum in the “fair” range, and that could only be approved with a cosigner whose range would at least have to be at the top end of “fair.”
Can You Get a Student Loan With Bad Credit?
Unfortunately, the results of this research imply that it’s fairly difficult to get a student loan with bad credit. Two out of the three national private student loan lenders who list their credit score minimums expect at least a 680. That falls in the bottom of the “good” range for FICO credit scores. Whether it be the applicant or cosigner, someone probably needs to show up to the application with good credit.
How to Get a Student Loan With Bad Credit
If you’re a student with no credit or bad credit, your best chance at approval for a private student loan is finding a cosigner with at least a 680 credit score. Keep in mind, traditional lending dictates that higher credit scores can achieve lower interest rates. It could also potentially lead to the ability to borrow more than someone with a lower credit score. In short, a student borrower might not want not just a cosigner they trust, but also someone with very good credit.
Once a student finds such a cosigner, the cosigner can be included in the application, or sometimes even added onto an existing application later. The process for the latter will depend on the lender.
Bad Credit Student Loans Without a Cosigner
The truth about private student loans is that few are easy to get without a cosigner. Even if a student has had a chance to build up a solid credit history, they might still struggle to meet minimum income requirements since traditional students typically only work part-time.
Therefore, although many private student loan lenders offer the option to apply without a cosigner, the likelihood is that the student will need a cosigner for approval. The good news is, many also offer the option for cosigner release. That’s a process by which someone can apply to have their cosigner released from the loan. This application can typically happen after the student has graduated, built up a strong credit profile, and made a set amount of payments.
This process can be frustrating for the student who wishes to go it alone on their loans, but there are advantages to having a cosigner. Again, not only can it lead to a higher likelihood of approval, but a cosigner with a solid credit history might even help the approval come with a lower interest rate. That might be reason enough to seek out a cosigner — after all, lower interest rates mean paying less on the loan overall.
Why Federal Loans Are a Better Option
Regardless of credit history, it’s a good idea to look at federal student loans before private student loans. For one thing, most federal student loans don’t require a credit check (PLUS loans for parents and graduate students are the only ones that do). Besides that, people with federal student loans may have access to income-driven repayment plans, as well as forgiveness programs.
Basically, borrowers can have a lot more flexibility when it comes to federal student loans than they might have with private student loans. That, plus the fact that you don’t need to have good credit to get most federal student loans means they can be a better option for student borrowers, regardless of their credit history.
Best Student Loan for People with Bad Credit: Ascent
As mentioned above, private student loan options for student borrowers with bad credit aren’t plentiful. However, there is one private student lender that publicly appears to be open to borrowers with fair credit: Ascent.
Ascent has a minimum credit score requirement of only 600 for a student borrower, so long as they have a cosigner with a minimum credit score of 660. For FICO credit scores, 600 and 660 both fall into the “fair” credit score range. Other private student lenders who share their minimum credit score requirements start at 680, which falls into FICO’s “good” range.
Here are more details about Ascent’s private student loans (rates include a discount for autopay):
- A fixed APR of 4.21 to 13.12 percent
- A variable APR of 3.22 to 12.54 percent
- No application fees or prepayment penalties
- A one percent cash back graduation reward
- A variety of repayment plans including deferred with a six-month grace period, in-school interest-only, and a $25 minimum payment plan (these plans are available for the cosigned option only)
- The ability to apply for cosigner release after 24 consecutive, full payments are made and other criteria are met
- The ability to apply for temporary hardship forbearance should a period of financial difficulty occur
The Bottom Line
It may not be easy to find student loans for bad credit, but federal student loans are often a far better choice in the first place. The application for federal student aid includes federal student loans, grants, and work-study programs. The formula used to determine your financial aid package, in part, considers your financial need, whereas private student loans consider your credit and income. In other words, federal student aid is there to help the students who need educational funding the most.
Outside of that, private student loans can still be accessible if the student has someone in their life willing to cosign on their loans who also has good credit.