Your credit history doesn’t need to be a barrier between you and your education: Even borrowers with bad credit or no credit can find student loans. You may not even need a co-signer, although the backing of someone with good credit may improve your chances of approval and your interest rate.
This guide will tell you everything you need to know to help you qualify for a student loan with less-than-perfect credit.
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Find the Best Student Loans for You
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Sallie Mae is a publicly traded consumer bank that offers private student loans to pay for undergraduate, graduate and professional degrees, among other educational needs. Congress started Sallie Mae in 1972 as a government-sponsored entity that serviced student loans. The lender went private in 2004 and today provides a range of student loan products. Additionally, Sallie Mae Bank offers savings products and other tools to help families plan and pay for college, including a credit card that earns bonus cash back to help you pay off any student loan.
College Ave exclusively offers student loans. Founded in 2014 and based in Wilmington, Delaware, College Ave offers undergraduate, graduate and parent loans for students enrolled at schools affiliated with College Ave in all 50 states and the District of Columbia. College Ave’s advantage is speed, with applications that take a few minutes to complete and instant decisions.
Earnest is an online lender offering private student loans to college and graduate students, as well as student loan refinancing. The company was founded in 2013. Borrowers can choose their own loan terms to fund up to the full cost of their education.
SoFi is an online lender founded by Stanford business school students in 2011. SoFi offered student loan refinancing as of May 2012, and the San Francisco-based company added private student loans in 2019. Choose from undergraduate, graduate, law, MBA, health profession or parent loans with no fees.
PNC offers student loans in all 50 states for students at all stages of postsecondary education, including professional training loans and refinancing. The bank is also engaged in a number of community efforts, including financial literacy programs and PNC Grow Up Great, which supports early childhood education. For eligible undergraduate students, PNC offers opportunities to win $2,000 scholarships toward education expenses.
Ascent Funding is an online lender offering undergraduate and graduate student loans for those with or without a co-signer at more than 2,200 eligible schools nationwide. Students who are not U.S. citizens or permanent residents or those with Deferred Action for Childhood Arrivals status – aka “Dreamers” – may apply for an Ascent loan. Ascent Funding was founded in 2015 and is based in San Diego.
Credible is a loan comparison marketplace that allows would-be borrowers to shop around for student loans and student loan refinancing that meet their needs. The company was founded in 2012 in San Francisco as a tool to empower borrowers to shop rates and products.
Sparrow, founded in 2020, is an online marketplace where students and parents can fill out a single application to see whether they qualify for loan offers from a variety of lenders. Although Sparrow is not a lender, the free service allows you to compare rates across lending partners. Sparrow is also available to international students.
MPower Financing offers private student loans to undergraduate and graduate students within two years of earning a degree or starting a one- or two-year program at an eligible U.S. or Canadian school. The lender specializes in working with international students and Deferred Action for Childhood Arrivals recipients.
Nelnet Bank, founded in 2020 by Nelnet – one of the largest servicers of federal student loans – offers private student loans and refinance options. Private student loans feature co-signer release, plus a choice of several repayment plans and interest rate savings if you set up automatic payments. Nelnet Bank can refinance a Parent Direct PLUS Loan into a student’s own name.
There are a number of factors to consider when finding the best bad credit student loan for you.
- Interest rates. Bad credit student loans come with higher interest rates, but there may be options to lower those rates, such as by adding a co-signer.
- Repayment terms. The amount of time you have to repay a loan is an important consideration. Repayment options like extending the term, deferring payments or refinancing can provide you with more flexibility in the future.
- Funding available. Consider how much funding each lender offers to ensure that it can meet your needs.
- Eligibility requirements. Lenders may require you to meet certain conditions in order to qualify for bad credit student loans, such as citizenship, age, credit history, income and enrollment status.
- Required fees. Some lenders may charge fees to apply for loans or for any late payments, and it is important to include these when considering the total cost of the loan.
Find the Student Loan That’s Right for You
- Pay your bills on time and in full every month. “The most important factor in determining credit scores is payment history,” Block says. “Unfortunately, it can take a few months for your score to improve if your credit history isn’t good to start with.”
- Consider a secured credit card. Secured credit cards work like traditional credit cards, except the credit limit is secured by a deposit you make when you open the account. The deposit is usually equal to your credit line and can be used to pay your balance if you don’t.
- Keep an eye on your credit report. Do so “to ensure the credit agencies have accurate information on your balances, number of credit lines,” says Paramita Pal, head of U.S. Bankcard at TD Bank. “Inaccuracies can hurt a credit score.” You can request a free copy of your credit report from all three credit bureaus – Equifax, Experian and Transunion – on AnnualCreditReport.com.
Pros
- Finance your education. Bad credit student loans allow you to finance your education, even if you can’t qualify for other student loans.
- Options for co-signer. Some bad credit student loans may not require a co-signer, and others may offer a co-signer release option. This allows the co-signer to no longer be responsible for your student loan after a certain number of on-time payments.
- Improve your credit score. If you consistently make your student loan payments on time, you should see a rise in your credit score.
Cons
- Pay more interest. Interest rates for student loans are generally determined by a number of factors, including credit history. This means that bad credit student loans tend to have higher interest rates, and you will pay more for your loan.
- Less flexibility. If you don’t qualify for federal student loans, you will have to get private loans. Private loans have less flexible repayment plans and often expect you to make payments while you’re studying.
You can get a student loan without a co-signer if you have bad credit or no credit – most federal loans do not require a co-signer – but you may need one to get a private loan.
Unlike need-based federal loans that are funded by the government, private student loans from banks, credit unions and online lenders often require a credit history to prove that you can pay back the debt. Many students have thin or no credit histories, which makes approval difficult for private loans.
A creditworthy co-signer on a private loan can help your chances of approval and secure a better interest rate than you would get on your own.
If you don’t want a co-signer on your student loan permanently, look for a loan with a co-signer release. This would allow you to release your co-signer from the loan after you meet certain requirements, such as making a set number of on-time payments.
Borrowers with no credit can get student loans, says Josh Simpson, financial advisor with Lake Advisory Group. Federal student loans are the best choice because they often don’t require a credit check.
Federal loans, except for Direct PLUS loans, don’t consider credit history. Many private lenders require a credit score at least in the mid-600s for a student loan. Eligibility requirements for private student loans depend on several factors, such as debt-to-income ratio, earning potential and household income.
Parents who want Direct PLUS loans won’t need to meet a credit score minimum but cannot have an adverse credit history. That means you can’t have debts more than $2,085 that are 90 days or more delinquent or in collections, among other credit problems.
There are some alternatives for bad credit borrowers.
- Speak to your financial aid office. Some schools offer payment plans that allow you to pay tuition over a number of months instead of one lump sum.
- Apply for scholarships and grants. You may be able to reduce the need for loans by receiving scholarships and grants. To qualify, you will have to meet certain application criteria which could be based on need or accomplishments.
- Look into a Parent PLUS loan. If you cannot qualify for student loans, your parents may be able to qualify for federal Parent PLUS loans. These loans are made to parents of undergraduate students and tend to have high interest rates with repayment starting right away.
- Consider a home equity loan. If you or your parents own a home, a home equity loan might be an option to finance your education. This borrows against the cost of the home, but requires a second mortgage payment and using the house as collateral.
- Reduce your costs. If you’re not able to qualify for any additional loans or funding, you may need to reduce your education costs. This could mean living at home while studying or attending a school with lower tuition.
U.S. News selects the Best Loan Companies by evaluating affordability, borrower eligibility criteria and customer service. Those with the highest overall scores are considered the best lenders.
To calculate each score, we use data about the lender and its loan offerings, giving greater weight to factors that matter most to borrowers. The scoring factors for private student loan providers are customer service ratings, fixed APR, variable APR, loan product availability, minimum and maximum loan terms, minimum and maximum loan amounts, minimum FICO score, and online features.
The weight each scoring factor receives is based on a nationwide survey on what borrowers look for in a lender.
To receive a rating, lenders must offer qualifying loans nationwide and have a good reputation within the industry. Read more about our methodology.
To recap, here are the picks:
Best Student Loans for Bad Credit of March 2023
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