Even if you have bad or no credit history, you may still be eligible to borrow money for student loans. Most federal loans don’t require a credit check to qualify, and some private loans will allow you to take out a loan with a co-signer.
What credit score do you need for student loans?
While you don’t need a credit score for most federal student loans, you will need one for private loans. Private lenders tend to require borrowers have a credit score over 600.
If you need to use private loans and you have bad credit, there are ways you can improve your credit, but they usually take time. Some of them include paying bills on time, using less than 30% of your total credit card limit and asking for a higher credit limit.
Private loans and bad credit
Federal student loans offer flexible repayment options, fixed interest rates and limited forgiveness programs, but they have borrowing limits that may not cover the full cost of attendance. Many students will fill these gaps caused by the limits with private loans from banks, credit unions or online lenders.
Some private lenders consider income potential, major and GPA instead of credit scores when determining eligibility for a private loan.
If you have bad credit, here’s a way to prioritize your options:
- Start with federal student loans.
- Look at co-signed private loans.
- Consider private loans that don’t factor in credit scores.
- Look for a fixed interest rate.
Be sure to compare all your loan options and the terms — such as the interest rates and repayment options — before you make a decision.
Co-signed loans and bad credit
If you need a co-signer
If you have bad credit you will likely need a co-signer to be eligible for private loans. A co-signer is someone who shares the legal financial responsibility to pay back your loans — and having one can improve your chances of being approved for a loan or better interest rate.
A co-signer on your student loans can also be an option if you have borrowed all the federal loans available to you and you’re looking to borrow more with private loans. Having a co-signer helps you qualify for a loan, but you still are responsible for paying it back in full. A co-signer may be responsible for making payments on the debt if you are unable to.
You can also apply for student loan refinancing with a co-signer. Refinancing a loan could save you money by getting you a lower interest rate.
If you're thinking about being a co-signer
If you have been asked to co-sign a loan, and you have bad credit, you may be unable to take on this responsibility. Lenders are typically looking for co-signers that have good credit and a steady income.
Before agreeing to co-sign a loan, be sure you understand the breadth of the repayment responsibility and are prepared financially to pay down the loans. If the borrower misses a payment or goes into default, a co-signer will likely have to make those payments. A loan you co-sign will also show up in your credit report.
If you want to avoid asking someone to co-sign your private loans, you can first:
- Exhaust federal aid options.
- Build your credit before borrowing.
- Find a private lender that looks at factors other than your credit history.
How to get a student loan co-signer release
Many private student loan servicers have options to release a co-signer from a loan, but each lender will have their own requirements. A co-signer release is a process where the primary borrower removes the co-signer from the loan agreement, which removes the legal responsibility of the co-signer to pay back the loan.
Usually the primary borrower will need to do the following:
- Make at least 12 on-time payments.
- Meet the income and credit history requirements.
- Submit an application.
If your current lender doesn’t offer a co-signer release option, you could refinance your loan. When you refinance a loan, you take out a new loan that is only in your name. This new loan will pay off the original loan, and your original loan’s co-signer will no longer be legally responsible for the debt. In order to refinance your student loan, you’ll need to qualify for a new loan — which usually means having a good credit and a stable income.
Parent PLUS loans, graduate loans and endorsers
If you are a parent taking out a federal PLUS loan for your child, you will likely need to go through a credit check. Parents with poor credit may need an endorser (someone with good credit who agrees to pay back your loan if you don’t) to take out loans for their child.
An endorser is to federal loans what a co-signer is to private loans: a trusted individual who shares the legal responsibility of your student loan so you can borrow it.
Federal loans for graduate school, which are Direct Unsubsidized Loans, won’t typically require a credit check or endorser, but there are limits on how much you can borrow for graduate school. You can still borrow private loans for graduate school.
