#1 Student Loan Lawyer
Updated on December 31, 2022
Check out these student loans for borrowers with bad credit or no credit:
U.S. Department of Education — federal loans require no credit check
Yrefy — refinance defaulted private student loans, excellent customer service
Funding U — no minimum credit score requirement
Ascent — offers fixed rate and variable rate loans
Edly — great for nursing students
I’m going to tell you something most student loan websites won’t say: Borrowing private loans designed for people with bad credit is likely to land you with a bad loan. And that sucks.
If you can’t afford college with scholarships, grants, and federal student loans, it may be time to rethink your higher education plan. Internships, apprenticeships, networking opportunities, and relevant gigs can kickstart your career, often without a college degree.
Fortunately, federal student loan options make this process easy for the vast majority of borrowers. Let’s look at how to borrow for school, even with bad credit or no credit.
Can you get a student loan with no credit score? You can qualify for a federal student loan with no credit — there’s no credit check involved. You’ll likely need a cosigner with good credit to secure a private student loan with no credit.
Can bad credit stop you from getting student loans?
Bad credit cannot stop you from getting federal student loans.
Several private student loans are specifically designed for borrowers with bad credit, but most private loans factor in credit and payment history.
Reminder: Most 18-year-olds have no credit, so the federal government doesn’t even consider your FICO score when giving federal student aid to undergraduate students.
Most private loan providers require a minimum credit score (such as LendKey or CommonBond). Still, other private loan providers do not require a minimum credit score (such as Yrefy and Ascent).
Typically, the higher your credit score, the lower your interest rate on a private student loan.
What is the interest rate for a student loan for someone with bad credit? The interest rate for a student loan for someone with bad credit generally ranges from 4% to 14%.
Best student loan for bad credit: Federal student loans
The best student loans for borrowers with bad credit or no credit are, without a doubt, federal student loans.
The federal government offers loans with protections such as income-driven repayment terms, generous forbearance options, and several options for loan forgiveness. Federal loans are also eligible for any student loan cancellation that Congress passes or the President orders, such as the ongoing COVID-19 deferment.
The most common types of loans and federal financial aid are:
Direct Subsidized Loans — This is the best federal student loan. The federal government pays the accrued interest on Direct Subsidized Loans while you are enrolled at least half-time in a qualifying school or in deferment. Plus, the grace period on both Direct Subsidized and Unsubsidized loans means you don’t have to start paying until 6 months after you graduate or drop below half-time enrollment.
Direct Unsubsidized Loans — This federal student loan accrues interest while you’re enrolled in school. You will have to pay that interest.
Direct Consolidation Loans — You can consolidate any number of federal student loans into a Direct Consolidation Loan, including old FFEL loans. You cannot consolidate private student loans into a Direct Consolidation Loan.
Direct PLUS Loans — A parent may borrow federal loans on their student’s behalf. The parent is responsible for repaying the loan, not the student. PLUS loans tend to have slightly fewer benefits than other federal student loans.
Grad PLUS Loans — A graduate or professional student may qualify for a Grad PLUS loan. This federal student loan does require a credit check.
Pell Grants — This grant provides up to $6,895/year to students with exceptional financial needs. If you don’t maintain specific enrollment status or receive scholarship money that reduces your financial need, you may have to pay back the grant money.
TEACH Grants — Teaching students can get up to $4,000/year to pay for college. In return, the teacher must teach in a low-income area for 4 school years. If you don’t fulfill that requirement, the grant becomes a Direct Unsubsidized Loan that you have to pay back.
There are also discontinued federal loan types from 20+ years ago, but the U.S. Department of Education no longer offers FFEL loans or Perkins Loans.
Most federal student loans do not require a credit check, except for grad PLUS loans taken out by graduate and professional students.
Private student loans aren’t worth it
Honestly, I would not recommend getting private student loans or personal loans for student borrowers with bad credit. Private banks, online lenders, and credit unions don’t offer you the same protections you get with federal student loans.
Many employers today care more about experience than a degree. Apprenticeships, internships, and real-life experiences might work better for you in the short term and long term.
Filling out the FAFSA
To qualify for federal student loans, you must fill out the FAFSA (Free Application for Federal Student Aid). This loan application will go to your school(s) of choice, and the school will tell you about your borrowing limits, work-study eligibility, and qualifying financial aid.
Typically, you have to fill it out after filling out your taxes. If you’re a minor (like the typical 17-year-old senior in high school preparing for college), then your parents should file taxes as early as possible to allow you to start the FAFSA.
The FAFSA application process, step-by-step:
Create an FSA ID. Students need separate FSA IDs from their parents, who often need to log in to studentaid.gov to sign their student’s FAFSA.
Begin filling out the FAFSA. Select whether you are a student, parent, or third-party preparer.
Fill out Student Demographics, including name, birthday, ethnicity, etc.
Fill out School Selection. List all the schools to which you want to send this FAFSA info.
Fill out the dependency status section. This section determines whether the student is legally dependent or independent of their parents/guardians.
Fill out Parent Demographics, even if the student doesn’t live with any parent.
Provide financial information. This part is easy if you use the IRS Data Retrieval Tool (DRT).
Sign and submit the FAFSA. If you’re legally a dependent, your parent must also sign using their own unique FSA ID.
The schools you listed in the School Selection section will send you a financial award letter detailing all the federal student loan amounts, grants, and school scholarships you qualify for.
You must fill out a separate FAFSA each year to qualify for federal student aid.
8 tips for borrowing for school when your credit is bad
Check out these 8 tips for borrowing student loans with bad credit history.
While I’m not a huge fan of private student loans, a lot of people want to go to colleges that are more expensive than federal loans will cover. Ultimately, it’s up to you to make the best decision in your own circumstances.
1. Borrow federal first
You should almost always borrow federal student loans first.
Most federal loans provide you with better benefits than any private loan, such as:
The federal Direct Loan program offers U.S. citizens and permanent residents excellent loan terms with low eligibility requirements.
Federal loans tend to offer better interest rates.
Federal loans don’t require a credit check.
Federal loans are eligible for income-driven repayment plans (IDR). If you don’t make a lot, your payment could be $0/month with an IDR plan.
The federal government pays the interest on your Direct Subsidized Loans while you are enrolled at least half-time.
Federal loans are eligible for multiple forgiveness programs, such as Public Service Loan Forgiveness and IBR forgiveness. And remember, several U.S. Democrats hope to forgive a meaningful amount of borrowers’ federal student debt.
If federal student loans don’t cover the overall cost of attendance, seek out well-reviewed, low-interest private student loans. Or consider another path besides college.
Note: Graduate and professional students have higher loan limits than undergrad students. Grad students may be able to cover 100% of their cost of attendance with federal loans.
2. Don’t borrow more than you can afford to repay
Estimate how much you’ll be making in your chosen career. Budget how much you’ll be able to pay towards student loans each month after you graduate.
Don’t blindly borrow more than you can afford to repay. Avoid over-borrowing from private loan companies, which offer very little in the way of income-driven repayment options or any forgiveness options.
For context, the average American has just under $40,000 in student debt. 11% of those borrowers default in the first 12 months when their first loan payments become due.
3. Beware of high interest rates for subprime loans
Loans disbursed to borrowers with credit scores below 600-620 are considered “subprime loans.” Subprime student loans typically boast higher interest rates. The higher the interest rate, the more you pay over the life of the loan.
In my experience, subprime student loan lenders tend to be more aggressive in their collection tactics.
Check out my tips below on how to raise your credit score.
4. Ask a friend or family member with good credit to cosign
Many first-time undergraduate students must ask a family member to cosign private student loans with them. Private loan lenders want somebody with good credit on the hook if the primary borrower defaults (fails to pay).
If you plan on responsibly repaying your student debt, ask a family member to cosign your private student loan. A cosigner with good creditworthiness will likely lower your interest rate.
Read More: Can a Cosigner Sue the Primary Borrower on a Student Loan?
5. If you have to borrow private loans, read ALL of the fine print
As private lenders compete for business, private have become more generous with their terms, benefits, and interest rates.
However, private loan companies can still offer terrible loan terms, and you might not even know it when you sign. Read all the fine print of a private loan agreement or contract. Don’t become another student loan horror story because of unexpected legal details.
Hidden fees can increase the cost of a private loan. Avoid origination fees, and enroll in autopay since most advertised rates are actually the lower interest rates with the automatic payment discount already applied.
6. Look for a fixed interest rate
Variable APR interest rates are unpredictable and usually lead to higher actual loan rates.
Opt for a fixed APR interest rate for 2 reasons:
Fixed rates usually mean less money spent by the end of your loan term.
Fixed rates allow you to budget more consistently.
7. Research grants and scholarships instead of loans
Grants and scholarships do not have to be repaid, but loans do.
Scholarships should always be your first line of funding for school. You can qualify for scholarships based on test scores, where you live, your ethnic/racial background, religion, etc. Your college or an outside entity, such as a nonprofit, may provide scholarships relevant to you.
Grants require specific criteria to be met, in which case you don’t have to pay a grant back. However, if you fail to meet the terms, you may suddenly have to repay the grant money.
8. Consider waiting to go to school or choosing a less expensive college
If you have poor credit and can’t secure enough private student aid to pay for college, consider not attending college or finding a cheaper school. Several options for career growth don’t require you to live your whole life with insurmountable debt.
Employers often value experience more than a degree in today’s corporate climate. If you can’t afford college, seek out internships, apprenticeships, gigs, and networking opportunities.
How to raise your credit score to borrow student loans
You may want to boost your credit to borrow private student loans. It’s best to improve your credit, then seek a student loan with better terms, rather than borrow a high-interest loan with adverse credit history.
What credit score do you need for private student loans? You need a credit score of 620 to get a decent private student loan. You need a score of at or above 700 for great loan terms.
Raise your credit score with these basics:
Check out your credit report and understand what is working for and against you.
Learn about credit utilization, and aim for 30% or under.
Don’t close accounts, including old credit cards with no yearly fees.
Ask for higher credit limits on credit cards (but try to avoid a hard credit check).
Dispute credit report errors.
Budget your monthly income and expenses, and make sure you’re not spending more than you earn. Budgeting should help you not miss monthly payments.
Set up automatic payments. Be wary of over-drafting your bank account in the process.
Keep track of your credit score. When it goes down, figure out why. When it goes up, celebrate!
Advice for parent borrowers with bad credit
If you’re the parent of a college student or future student, you don’t have to worry about bad credit. Federal PLUS loans do not require a credit check.
PLUS loans (Parent Loan for Undergraduate Students) offer parents the opportunity to help pay for their student’s education with a federal loan. PLUS loans feature fewer benefits than most federal loans, but more benefits than private loans.
If you want to borrow private student loans on behalf of your student, I would instead suggest the student borrowing private loans and getting a cosigner with good credit. Common cosigners include parents, grandparents, and godparents.
Read More: 6 Ways To Avoid Defaulting When You Can’t Pay Parent PLUS Loans