Student Loans for Parents With Bad Credit

A parent might have a bad credit score due to unforeseen hardships, a thin credit file, or even mistakes on a credit report. A bad credit score, which FICO considers 579 and lower, can make it harder for parents to qualify for student loans for their kids.

But student loans, including federal loans, are available for parents with bad credit. We’ll explain these options and give you the steps to take if you’re denied a student loan due to bad credit.

Federal student loans for parents with bad credit

If a student needs to borrow money for college, the best first step is to apply for federal student loans by filling out the Free Application for Federal Student Aid (FAFSA). Many students prefer federal student loans over private loans because federal loans come with fixed interest rates and flexible repayment options.

However, sometimes students need additional funds, and that’s when parents can step in. If you’re a parent with bad credit, you might be concerned about your options when it comes to applying for federal student loans.

Our expert discusses the risks and pitfalls for parents with bad credit

Erin Kinkade

CFP®

Parents with bad credit risk being denied a parent loan. If they’re approved, the interest rate will likely be high. I recommend that the parent improve their financial condition and credit profile before applying for a loan. If they’re unsure about how to do this, they should engage with a financial or debt counselor or other financial professional who has experience navigating these financial obstacles.

Parent PLUS loans

One option is the Parent PLUS loan, which is designed for parents to borrow money on behalf of their children. The Parent PLUS loan differs from other federal loans because parents apply for it in their own name. These loans are not cosigned with your child, so you, the parent, are responsible for paying it back.

When you apply for a Parent PLUS loan, the U.S. Department of Education will conduct a credit check. It doesn’t list a required minimum credit score; however, it states that you can’t have an adverse credit history.

Examples of an adverse credit history include a 90-day delinquent balance greater than $2,085 or declaring bankruptcy during the previous five years. A tax lien, wage garnishment, foreclosure, or repossession during the previous five years also qualifies as having an adverse credit history.

What to do if you’re denied a Parent PLUS loan

You still have options if you get denied a Parent PLUS loan due to an adverse credit event. 

• Option 1: Write to the U.S. Department of Education and explain why you have extenuating circumstances and want it to reconsider you for a loan. You may need to provide evidence of payments or evidence that you’re not responsible for specific debts or collections on your credit report.
• Option 2: Get someone to endorse you. An endorser is someone who agrees to pay the loan if you can’t.

If you ask the U.S. Department of Education to reconsider your loan application, and it does, you’ll also need to complete the required credit counseling. 

Keep in mind that Parent Plus Loans do not have a grace period. However, you can request a deferment to push back payments until six months after your child graduates, leaves school, or drops below part-time. 

Loan	Min. credit score	Rates (APR)
Parent PLUS	None, but can’t have an adverse credit history	8.05%

How to apply for federal student loans if you’re a parent with bad credit

To apply for federal student loans, follow these steps. 

1. Make sure your child has completed the FAFSA.
2. Apply for a Parent PLUS loan online. To do that, you’ll need an FSA ID, the school’s name, your child’s information, your personal information, your employer’s information and the requested loan amount.
3. If you’re denied a Parent PLUS loan due to bad credit, get an endorser, or submit a note to the U.S. Department of Education to explain your extenuating circumstances. 
4. If you’re approved for a loan, complete credit counseling, if required, and sign your Master Promissory Note (MPN).
5. Decide how you want the loan to be distributed. Many parents have excess funds distributed to their children.

Private student loans for parents with bad credit

If a student needs additional funding beyond what federal student loans offer, consider applying for private student loans. The best option for parents with bad credit may be to encourage their children to apply for private student loans that don’t require a credit score or a cosigner.

Most private lenders that require parents to be cosigners ask for employer and credit history. Bad credit could prevent your child from qualifying for a private student loan, so a private lender that offers non-credit-based loans might help.

Here are a few we recommend.

Lender	Min. credit score?	Rates (APR)
Funding U	❎	7.49% – 12.99%
Ascent	❎ for outcomes-based loan ❗ 600 for credit-based non-cosigned loan	4.29% – 15.85%
MPOWER	❎	13.98% – 17.08%
Edly	❎	Repayment based on salary

Read More

Best Parent Student Loans

How to apply for private student loans as a parent with bad credit

As we mentioned, if a parent has bad credit, the best option may be for their child to apply for private student loans independently. Look for lenders, including the ones listed above, that approve borrowers based on qualifications other than credit scores.

Top private student loan lenders

For example, Funding U bases loan eligibility on academic performance, not a credit score. It specializes in offering no-cosigner loans, so a student can apply for one without a parent’s help. 

Ascent is a private student loan that offers a non-cosigned, outcomes-based loan. Juniors and seniors can apply for this loan without a parent. To qualify, they must meet certain qualifications, including having a 3.0 GPA or higher.

MPOWER is a private student loan company that caters to international students without a credit history. The interest rates are higher, but no credit history is required.

Edly is unique because it does not require a cosigner and offers career-based approvals. Your child’s monthly payments after graduating are based on income, and they don’t need to repay their loans until they start earning $30,000 per year or more. They must major in a specific program to qualify.

Steps to apply for a private student loan

Students should submit a prequalification application to apply for any of these private student loan companies. After prequalification, students should decide which company is best for their personal situation and submit a full application. 

Once approved, students should have the funds needed to complete their education. Parents can always help their children repay the loans, even if they’re not officially cosigned on them. Parents can help in other ways, such as allowing their children to stay home and attend school to save on housing and food costs.

What to do if you’re denied student loans as a parent with bad credit

According to new research from New Reality Check: The Paycheck-to-Paycheck Report: Household Finances Deep Dive Edition, parents have credit card balances 26% higher than the average consumer. 

In other words, raising children can be financially difficult and might lead some parents to have bad credit. This can be a challenge when children go off to college and parents want to help pay for school with loans.

Loan options for parents with bad credit

Although federal loans and most private loan companies require good credit to qualify for loans, parents with bad credit still have options. 

1. Encourage children to apply for private, no-credit-check student loans on their own. Many newer student loan companies, including those mentioned above, offer student loans without a credit check or cosigner. 
2. Improve your credit. Parents can take the first step to improve their credit by pulling a free copy of their credit report. Make sure your credit report is accurate, and settle adverse accounts. Paying down debt can also help improve a credit score. If your credit score improves over time, you can reapply for private student loans as a parent to get more favorable terms.
3. Reapply for Parent PLUS federal student loans using an endorser or by contacting the U.S. Department of Education to explain your extenuating circumstances. Keep in mind that some private lenders might offer better rates and terms to parents, especially those with good credit. So, as your credit improves, research private lenders as well. 

Our expert’s advice

Erin Kinkade

CFP®

I suggest that parents and guardians with poor credit avoid taking on additional credit card debt, which can be difficult in the current economic environment, given where inflation is and the overall cost of essentials such as groceries, gas, mortgage or rent, insurance, and utilities. I would remind parents that it’s OK for the student to take on education loans, and in the future, when the parent or guardian is in a better financial condition, they can assist with paying off the loan or becoming a cosigner in an effort to obtain better terms.

Other tips for affording college

Parents want to do whatever they can to support their children. Even if parents have bad credit, their children still have options for funding a college education. 

Students who want to stay closer to home could attend a more affordable school by enrolling in community college and living at home. Another option is to encourage your children to work while going to school part-time. Students can also apply for grants and scholarships, which can help cut down on tuition costs. 

Parents should not be discouraged if they are denied student loans due to bad credit because their children have many ways to fund their education.

Recap: Best private student loans for parents with bad credit

Lender	Rates (APR)
Funding U	7.49% – 12.99%
Ascent	4.29% – 15.85%
MPOWER	13.98% – 17.08%
Edly	Repayment based on salary