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.
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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.
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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.
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