Student Loans for Bad Credit Guide

With the rising costs of attending a college or university, most families in the U.S. look for funding options such as student loans. However, what happens if you or your parents have bad credit or no credit? This can affect your options, but with the bad credit student loans below, you don't need to have a good credit score.

• Federal Student Loans for Bad Credit
• Private Student Loans for Bad Credit
• Alternatives to Bad Credit Student Loans

Federal Student Loans for Bad Credit

For anyone who is concerned about poor credit or no credit, most federal student loans don’t take these factors into account. There is no need to go through a credit check to be eligible for federal student loans. What students do need to do is complete the Free Application for Federal Student Aid (FAFSA). This is how both eligibility and need are determined.

For anyone wondering about student loans for bad credit, completing the FAFSA and applying for federal student loans is the best place to start. There are several types of federal loans available which have no or little credit requirements, and some of the most popular are detailed below.

Direct Subsidized Loans

Direct subsidized loans are provided by the U.S. Department of Education. Direct subsidized loans are available to undergraduate students who demonstrate financial need. The U.S. Department of Education pays the interest on these loans while the student is still in school at least half-time, for the grace period during the first six months after the student leaves school, and during periods of deferment.

The amount students can borrow depends on eligibility and the costs outlined by the specific school the student will attend.

For subsidized loans, the maximum amount is $3,500, and it goes up from there depending on the year students are in school. The interest rates on subsidized loans for undergraduates are around 5.05% for loans first disbursed on or after July 1, 2018 and before July 1, 2019.

Direct Unsubsidized Loans

The Direct Unsubsidized Loan is similar to the Direct Subsidized. The only difference is that with the Direct Unsubsidized Loan, interest starts to accrue as soon as the loan is taken out.

Students have the opportunity to max out their available amount of funding with the Direct Subsidized Loan and then borrow an additional $2,000 with the Direct Unsubsidized Loan.

Direct PLUS Loans

The Direct PLUS Loan can be taken out by parents to help them pay for the cost of their child’s education. The PLUS Loan is more similar to a private loan 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. For example, the primary factors that will influence a PLUS Loan decision are being 90 days or more delinquent on a debt, or something major like a default, bankruptcy, or foreclosure.

Private Student Loans for Bad Credit

Even when a student receives financial aid and federal loans, they might have gaps that need to be covered in terms of the cost of their education. They may look at private student loans, but there are some downsides. First, private student loans do require a credit check, and most require a cosigner. Private student loans also tend to have higher interest rates, fewer repayment options, and also fewer overall protections for borrowers.

If a borrower does have bad credit they might still receive the loan, but the interest rates are likely to be higher than what a borrower with good credit would pay. In some cases, the interest rates can be much higher.

The following are some private lenders that might provide student loans for bad credit.

Ascent

Ascent offers loans for college juniors and seniors as well as graduate students. These loans are provided to 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

MPower

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, and this includes 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

FundingU

FundingU is another company that specializes in providing education loans for people with bad credit or no credit. There is no cosigner required to be eligible for these undergraduate student loans. FundingU 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 FundingU 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

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, but may be need-based as well.

Bottom Line

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.