Student Loans for Bad Credit Guide
Students or parents with bad credit or no credit history should know there are options when it comes to bad credit student loans. Federal student loans are typically the best borrowing option, but there are private loan options as well.
Due to the rising costs of college, most students and their parents will end up having to turn to student loans to help.
But what happens if you or your parents have bad credit or no credit?
While this can affect your eligibility for some student loans, there are options you can turn to.
On this page:
- Federal Student Loans for Bad Credit
- Private Student Loans for Bad Credit
- Alternatives to Bad Credit Student Loans
Federal Student Loans for Bad Credit
Federal student loans don’t take your or your parent’s credit score into account when determining eligibility.
Instead, the government will simply see if you meet some basic requirements such as being a U.S. citizen or eligible non-citizen and being enrolled in an eligible school.
In order to find out if they are eligible, students simply need to complete the Free Application for Federal Student Aid (FAFSA).
So which federal student loans are available for students with bad credit? Direct Subsidized Loans, Direct Unsubsidized Loans, and PLUS Loans are available for those with bad credit or no credit history at all. Read on to learn more about each of these loans.
Direct Subsidized Loans
Direct Subsidized Loans are provided by the U.S. Department of Education and are only offered to undergraduate students. These are available to undergraduate students who demonstrate financial need.
What’s great about subsidized loans is that the government pays the interest while the student is still in school at least half-time, for the grace period (six months after the student leaves school), and during periods of deferment.
For subsidized loans, the annual maximum borrowing limit ranges from $3,500 to $5,500 depending on grade level.
The interest rates on Direct Subsidized Loans for undergraduates are 4.53% for loans first disbursed on or after July 1, 2019 and before July 1, 2020.
Direct Unsubsidized Loans
The Direct Unsubsidized Loan is similar to the Direct Subsidized except that with the unsubsidized loan, the government does not pay the interest at any point and graduate students are eligible.
While interest rates remain the same, students are eligible to borrow more in unsubsidized loans. Limits range from $5,500 to $12,500 depending on grade level and dependency status.
Direct PLUS Loans
PLUS Loans are more similar to private loans than other types of federal loans. These loans do require a credit check and they have higher interest rates and fees than other federal loans.
Even though there is a credit check for the Direct PLUS Loan, requirements are likely less stringent than private loans. The government just wants to make sure the applicant has no adverse credit history such as a bankruptcy or delinquencies over 90 days.
Private Student Loans for Bad Credit
After students max out federal student loans and other aid, they may still have gaps that need to be covered in terms of paying for college. The next step is to look into private student loans.
Private student loans do require a credit check and because most students haven’t established a credit history yet, most require a creditworthy cosigner.
So are there private student loans available for students with bad credit?
Yes, there are! Ascent, Funding U, and MPower are all some lenders who specialize in offering student loans for those with bad credit or for those without a cosigner. Read on to learn more about each of these lenders.
4.23% – 14.16%
5, 10, or 15 years
$2,000 – $200,000
Ascent offers loans for both undergraduate and graduate students. These loans are provided to both students with cosigners and students without a cosigner, and they can be used to cover up to 100 percent of a borrower’s tuition and living expenses.
Eligibility for Ascent student loans is based not just on creditworthiness but also individual factors such as what the applicant is studying, which can indicate future earning potential.
The following are some details of Ascent student loans:
- Variable APRs range from 5.49% to 12.77%
- Fixed APRs range from 7.00% to 13.74%
- There are no application fees or origination fees
- Ascent offers a 1% cash-back graduation reward
7.99% – 14.49%
Up to $10k per school year
Funding U is another company that specializes in providing education loans for people with bad credit, no credit, or no cosigner.
Funding U bases loan decisions on how an applicant is progressing in school and their earning potential. It takes only two minutes to prequalify online at the Funding U website.
The following are some of the loan terms and specifics of student loans from FundingU:
- With AutoPay, the APR is 11.49%
- Students are eligible for a maximum of $5,000 per semester
- Loans close in around two to three days
- Students have to be pursuing a bachelor’s degree at a Title IV-eligible four-year college, and for-profit schools aren’t eligible
7.99% – 13.99%
3 – 10 years
$2,001 – $50,000 per school year
MPower is a financial institution providing loans for international students, DACA students, and also domestic students. Students can apply for a loan from MPower without having collateral, a credit score, or cosigners.
Details of MPower loans include the following:
- MPower offers loans to more than 190 nationalities including the United States
- Fixed interest rate loans range from $2,001 to $50,000
- Rates from 7.99% to 13.99%
- There are up to 1.50% interest rate discounts available
- MPower works with more than 200 schools
Are There Alternatives to Bad Credit Student Loans?
Students who are worried about the effects of bad credit on their ability to get student loans should also take the time to research grants and scholarships.
Grants and scholarships don’t have to be paid back since they are gift aid and there isn’t a credit check. Grants are typically need-based, while scholarships are most often merit-based (though they may be need-based as well).
If you are planning how to pay for school and you have no credit history or bad credit, or your parents don’t have great credit, there are options available to you. It’s a good idea first to explore grants and scholarships that don’t have to be paid back.
Students should also complete the FAFSA as soon as possible since student loans provided by the federal government don’t require a credit check in most instances.
If a student does need private funding to cover gaps in the cost of education, some companies provide student loans to borrowers with no credit or bad credit, and some don’t require a cosigner.
Author: Ashley Sutphin
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