Can I Consolidate My Student Loans With Bad Credit?

#1 Student loan lawyer

Updated on October 6, 2022

The Education Department allows borrowers with bad credit to consolidate federal student loans. Finding a private lender willing to do the same is nearly impossible.

Student loan consolidation is possible with a low credit score if you’re consolidating federal loans. The U.S. Department of Education doesn’t run a credit check as part of the application process. Instead, the department will review your account to ensure you have eligible loans and that you don’t have a wage garnishment or a judgment for a defaulted federal student loan.

In contrast, private lenders have tighter lending guidelines for private student loan consolidation and refinancing. Lenders prefer borrowers with excellent credit, a long credit history, good income, and a low debt-to-income ratio. If your credit score is below 680, you’ll typically need a cosigner to help push your loan application through.

And if you’re delinquent or in default? One of the only refinancing options available is a new online lender, Yrefy.

Ahead, learn how to consolidate federal student loans with bad credit and options for your private loans if refinancing isn’t an option.

Learn More: How to Refinance Student Loans With Bad Credit

How to consolidate federal loans with a low credit score

When you consolidate federal loans, the government pays off your current loans and replaces them with a new Direct Consolidation Loan. While you can’t be denied consolidation for poor credit, your application can be rejected if you don’t have an eligible loan.

Most federal student loans can be consolidated, but you won’t be able to consolidate:

  • A single federal loan by itself — a Direct Loan, for example — unless it’s an FFEL Consolidation Loan.

  • A joint spousal consolidation loan.

  • A loan with an active wage garnishment or judgment.

Once approved, your new loan will have a fixed interest rate based on the weighted average of your previous rates. Read more about how to find your federal student loan consolidation interest rate.

Follow these three steps to consolidate your federal loans:

  1. Log in to Once logged in, click “Manage My Loans” and “Consolidate My Loans.” The website will walk you through the application and let you choose which loans you want to include in the consolidation. It will also allow you to pick a student loan servicer. Note: If you qualify for the Public Service Loan Forgiveness Program, you’ll want to choose MOHELA as your servicer. MOHELA took over the administration of the PSLF Program from FedLoan Servicing earlier this year.

  2. Choose a repayment plan. Consolidation can extend your repayment term to 30 years, depending on your loan balance. If you want to lower monthly payments and qualify for student loan forgiveness, choose one of the income-based repayment options. The Education Department recently announced it would make a one-time adjustment that will push over three million borrowers closer to income-driven repayment forgiveness by crediting them for past payments under different plans and for being steered into lengthy forbearances and deferments. Read more about the IDR Waiver.

  3. Submit the application. After submitting the form online, you’ll have a chance to review the new loan amount and interest rate. You can decline the application if you’re dissatisfied with the loan terms. The consolidation process typically takes about 6-8 weeks to complete.

Learn More: Best Student Loan Consolidation Companies

Private student loan consolidation alternatives

Most student loan refinance lenders judge your creditworthiness by first looking at your FICO score. If you meet the minimum credit score requirement — usually 650 at the lowest — the underwriting team will analyze your income, expenses, and payment history.

Good credit is necessary to consolidate or refinance loans with private lenders.

If you don’t have it, your options are to:

  • Refinance with a cosigner with stronger personal finances.

  • Find a credit union that offers members with poor credit personal loans to pay off debt.

  • Explore student loan refinancing with one of the only student loan refinancing lenders that looks beyond credit scores — Yrefy.

Keep in mind that even if you find a lender willing to look past your score, qualifying for a lower interest rate than your current rate likely won’t happen.

As with credit cards and auto loans, lenders offer the lowest rates to borrowers with excellent credit and penalize borrowers with bad credit by raising their refinance rates to cover a potential loss if they skip out on payments. For that reason, it makes sense to hold off on refinancing student loan debt until you raise your score.

Here are three ways to boost your score:

  • Check your credit reports for errors. You can grab a free credit report from each credit bureau via once every 12 months. If you find negative, inaccurate information, file a dispute with the appropriate credit bureau.

  • Avoid late payments. Payment history is worth 35 percent of your FICO Score. Setup autopay with your bills and student loan payments to ensure you make on-time payments.

  • Lower your credit card balances. Credit utilization alters your credit scores. Paying down credit card balances (and increasing your borrowing limits) will reduce your utilization rate and improve your credit score.

Learn More: Here’s the Credit Score Needed to Refinance Student Loans

Bottom Line

It’s possible to consolidate federal education loans when you have bad credit. And unlike refinancing with a bank or online lender, the Education Department doesn’t base your interest rate on your creditworthiness. The fixed APR you’ll get for the life of the loan will be based on the rates you already have.

If your goal is to refinance and get a better interest rate, hold off until you raise your credit score. Doing that will position you to get competitive offers for fixed and variable interest rate loans from different lenders.

UP NEXT: Should I Consolidate My Student Loans for PSLF?

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