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Getting most types of loans requires borrowers to prove their creditworthiness. To do this, many lenders review an applicant’s credit history and credit score.

Students who may have little or no credit, or even bad credit may be wondering, can you get a student loan with bad credit? It is possible to borrow a student loan with bad credit. Federal student loans, with the exception of Direct PLUS loans, do not require a credit check.

Private loans, on the other hand, generally do review a borrower’s credit history to inform their lending decisions.

Read on for some more information on the different types of student loans, information on how credit scores are used in a lender’s decision making process, and how to get a student loan with bad credit.

Getting a Federal Student Loan

As mentioned, when applying for most federal student loans, the status of your credit is not usually a factor. One exception is if you are in default on an existing federal loan, that may hinder your ability to qualify for more federal funding.

In order to take out federal student loans, you first need to fill out the Free Application for Federal Student Aid (FAFSA®). If you are a dependent student, you will also need your parents to fill out their portion of the FAFSA.

Are you a Dependent Student?

Not sure if you’re a dependent student or not? You very likely are if you are under the age of 24, even if you are financially independent and even if your parents don’t claim you as a dependent on their tax forms any more.

If you’re under the age of 24, there are a few ways you wouldn’t be considered a dependent student including if you were legally emancipated, are an orphan, are married, are an armed services veteran, or currently serving active duty, or if you have legal dependents other than a spouse.

Subsidized and Unsubsidized Student Loans

The FAFSA is used to determine your financial aid award, including both Direct Unsubsidized or Subsidized Loans.

Subsidized Federal Loans take financial need into account and the federal government will pay the interest that accrues on these types of loans while the borrower is attending college. So, the principal amount that is initially borrowed will remain the same until after graduation.

Unsubsidized Federal Loans don’t take credit history or your financial need into account, and you are responsible for paying any interest that accrues — including while you’re in school and during times of deferment or forbearance.

Another type of federal loan is called the PLUS Loan, and it’s available to parents of students if they want to help fund their children’s college education. It’s also available for graduate/professional students. According to the Department of Education, all Direct PLUS Loan applicants go through a credit check, because a qualification of the loan is that the borrower can’t have an “adverse credit history.”

Recommended: Comparing Subsidized vs. Unsubsidized Student Loans

Getting Private Student Loans

If you find that sources of funding like federal student loans, scholarships, grants, or earnings from work-study will not be enough to fund your education, then private student loans may be another option to consider. Note that private student loans do not come with the same borrower protections afforded to federal loans (such as federal forgiveness programs or income-driven repayments or deferment options) and are usually only considered after all other options have been reviewed.

When it comes to private student loans, you may be asking yourself, can I get a student loan with bad credit? Private lenders are more likely to rely on credit scores and credit history when determining their lending decisions.

So if, for example, you currently have a lower credit score, or not enough credit history, you may want to consider applying with a cosigner who has solid credit history, which can help strengthen the loan application. And, if you haven’t really established your own credit history yet, a private lender will also likely want a cosigner for at least two reasons:

•   There is scant record to demonstrate how responsibly you would pay back a loan

•   About 15% of your FICO® Score is based on the length of your credit history (and 90% of lenders use FICO Score when making lending decisions)

Development of Credit Scores

Credit scores were first developed by the three major credit bureaus and the Fair Isaac Corporation (FICO) in the late 1980s and have now been widely adopted by the financial industry. Before the development of such scores, lenders needed to slog through credit reports that were sometimes pages long, and then make lending decisions that, at least in part, were based on these reports. Under that system, it was easier for the biases of lenders to play a role in lending decisions.

With credit scores, information is quickly summarized, and lenders can establish objective requirements about what type of credit is needed before a cosigner is required and/or a loan can be approved.

How Credit Scores Are Used

When applying for a loan, as mentioned previously, about 90% of lenders refer to your FICO Scores as a sort of risk “litmus test.”

Now, let’s say you apply for a private student loan. The lenders will review your application, including your credit score, and they can approve it, deny it, or offer you something different from what you requested.

Lenders will likely look at your credit score, as well as factors like how many loans you currently have, your payment history, and the amount of time in which you’ve responsibly used credit.

Recommended: Can You Get a Student Loan With No Credit History?

Building Credit Scores

Thirty percent of your FICO Score is based upon how much money you owe. This means that reducing your debt may help build creditworthiness. These tips may also help those who are interested in paying off debt on the way to potentially strengthening their credit scores:

•   Make monthly payments on-time.

•   Prioritize paying off credit card balance monthly.

•   Consider reducing the interest rate on debt by consolidating credit card debt into a personal loan.

•   Snowball down the debt. With this method, if you have debt spread across multiple credit cards, you’d start by paying off the account with the smallest balance while making minimum payments on the rest. Then move to the next smallest bill, paying as much as you can on that one until it’s paid off, and so forth.

•   Limit the amount of spending done with a credit card.

Once your credit gets stronger, you may want to consider refinancing any existing student loans you have. With student loan refinancing, you take out a new loan to replace the old loan, ideally with a lower interest rate and better terms.

If you currently have student loans, and you’re wondering if refinancing might be a good option for you, using a student loan refinance calculator can help you determine how much you might save.

Should you refinance your student loans? If you can get better rates and terms with a stronger credit score, it may be worth it. However, it’s important to note that refinancing federal student loans makes them ineligible for federal programs and protections. If you don’t need to use those programs, you may want to explore refinancing.

Recommended: Student Loan Refinancing Guide

The Takeaway

Credit scores and credit history can play a big role in a lender’s decisions. They are used to determine a borrower’s creditworthiness and can influence if an applicant is approved for a loan and the types of terms and rates they qualify for.

Can you get a student loan with bad credit? Aside from Direct PLUS Loans, federal student loans do not require a credit check. However, private student loans usually do require a credit check. As mentioned above, because private student loans lack the borrower protections afforded to federal student loans (like income-driven repayment plans), they are generally borrowed only after the student has exhausted all other options.

If you have student loans and you’re thinking about refinancing them to get a more competitive interest rate, consider SoFi. There are no fees and you can check your rates in just minutes.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SoFi Student Loan Refinance
SoFi Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org). SoFi Student Loan Refinance Loans are private loans and do not have the same repayment options that the federal loan program offers, or may become available, such as Public Service Loan Forgiveness, Income-Based Repayment, Income-Contingent Repayment, PAYE or SAVE. Additional terms and conditions apply. Lowest rates reserved for the most creditworthy borrowers. For additional product-specific legal and licensing information, see SoFi.com/legal.

When you create a budget, you are doing more than just tracking each dollar that comes in and goes out. You are also usually calculating what percent of your income should go to each spending category, as well as how much you think should go towards that bucket. That’s how you can see where you may be paying out too much of your hard-earned cash in one area.

Understanding what percentage of your income should go towards each purpose can be a valuable tool for managing your financial life. You might want to cut down on how much of your hard-earned cash is going toward food and entertainment and boost the percentage that goes to paying off, say, a student or car loan.

That’s why knowing how to determine budget percentages is a valuable tool in getting your budget and personal finances on track. Learn how to do the math here.

What Are Budget Percentages?

Even if you’ve already created a budget, you may have been thinking of it more in terms of specific dollar amounts than percentages of your income as a whole.

That’s where budget percentages come in: Rather than assigning a set dollar amount to spend in a given category, budget percentages require us to think instead about the proportional amount of our income that the dollar figure represents.

Take groceries. The USDA lists the average cost of a nutritious food plan every month, and those costs can range considerably. A couple 50 and younger might spend as little as about $595 a month on food at home or as much as $908. (That’s right: the cost of the “liberal plan” is about 50% higher that of the “low-cost plan,” according to the USDA.)

Whether either of those figures sounds reasonable may depend on what you earn, but by parsing each expense as a proportion of the whole, it’s easy to figure out how much you have to spend in each budget category. You can also look into reallocating if you were to get a raise or if your cost of living were to change (say, if you were to move).

Think of it as a pie chart: No matter the amount of cash you spend on a given category, that money represents a certain slice of the pie. Making sure that slice is the right size is important to ensure that everyone at the table — which is to say, each of your line items — will get some.

Recommended: Local Housing Market Trends

Basics of Budgeting Percentages

As mentioned, there are no hard and set rules on what percentage of income to assign to each specific budget category. After all, even the categories themselves will depend on your personal needs and wants. (Maybe you’re a frequent flyer with a budget line item for international travel, for instance, or a music aficionado who has to stash some cash for your growing vinyl collection.)

That said, there are some basic rules of thumb that can be used as a starting place and then customized for individual needs.

Example Budget Percentages

If you ask five financial experts what percentage of your money to allot to a given category, you’ll probably get five at least slightly different answers.

But here are some basic example budget percentages that many experts can, more or less, agree on:

•   Housing (rent or mortgage, including property tax and other expenses): 25%
•   Insurance (such as health insurance, auto insurance, and life insurance): 10%
•   Groceries: 10%-15%
•   Transportation (including gas, parking, and maintenance): 10%
•   Utilities (such as electricity, internet, and water): 10%
•   Savings (including retirement): 10%
•   Entertainment (movie nights, dinners out, etc): 10%
•   Clothing: 5%
•   Miscellaneous: 10%

That “miscellaneous” category gives you the opportunity to devote more cash to categories that you consider worth splurging on, get busy repaying debt, or make charitable donations.

But again, this breakdown is just a starting point. You’re in charge of which expenses matter most to you!


💡 Quick Tip: Make money easy. Enjoy the convenience of managing bills, deposits, transfers from one online bank account with SoFi.

The 50/30/20 Rule

One popular form of proportional budgeting is the 50/30/20 budget rule, originally popularized in All Your Worth: The Ultimate Lifetime Money Plan, written by Sen. Elizabeth Warren and her daughter, Amelia Warren Tyagi.

Per this rule, you’d divide up your income and spend 50% on needs, or essential items; and 30% on wants, or nonessential items; and commit 20% to savings.

Of course, you’d then have to further extrapolate how much of that 50% would go to housing vs. food, for example, and how much of that 30% would go to dining out vs. streaming services.

In Warren’s estimation, that 20% would also cover the money being put toward debt repayment, but of course, this isn’t the most aggressive debt-repayment strategy available—and a fifth of your income might not be enough to meet both retirement savings goals and debt repayment goals.

Which is to say, once again, that budget percentages are all about personalization. Which line items do you need to prioritize? Which can you minimize and cut?

How to Make Budget Percentages Work for You

Starting with the guidelines above, you can put budget percentages to work for you to help make your money map more effective … and also to ensure your money is going where you want it to go, rather than allowing it to end up where it will. Odds are, this exercise will be helpful, regardless of which of the different budgeting methods you use.

To start, determine all the categories that need to be accounted for — a list of everything you spend money on each and every month. This will include both necessary costs, like housing and food, as well as wants like entertainment costs, and important financial goals, like retirement savings and debt repayment.

Each and every expense must be represented for your budget percentages to truly add up to 100%.

Then you can start with fixed expenses (like your rent or mortgage payment, insurance payments, etc.) and determine what percentage of your overall monthly income they represent. That way, you’ll know how much you can allot for more flexible expenses, like groceries and gas.

This exercise will also reveal if you’re regularly overspending on a fixed expense. For instance, if you determine that your housing cost is closer to 50% of your budget than 30%, it might be time to consider getting a roommate or taking up a side hustle.

You may want to start by determining your budget percentages with your spending as is, and then create an aspirational pie chart to set your goals.

Maybe you want to spend less on streaming services and save more for travel or devote more of your income to repaying your student loans. It’s all possible with percentages.

Recommended: How to Make a Monthly Budget

The Takeaway

Slicing the pie into budget percentages makes it easier to meet financial goals and can be a major stress reducer. When you know where your money is going, you don’t have to worry about where it all went. Allocating percentages to your spending and saving categories can help you better manage your money.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

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As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.00% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

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Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 12/3/24. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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