Federal Student Loans for Bad Credit
When it comes to student loans for bad credit holders, federal student loans are your best bet. They feature non-competitive, low fixed interest rates. Any student who files their FAFSA, regardless of their economic means, can borrow federal student loans. Since Congress sets the rates each year based on the 10-year treasury, the interest rate might change year to year, but it’s still the same for every student. You can view the most up-to-date federal student loan interest rates here.
If you have no credit history or a low credit score, borrow federal student loans first. You won’t find a better deal from a private lender unless you happen to have a cosigner with excellent credit. Along with offering you a low fixed interest rate, federal student loans also come with the following borrower perks and protections:
- No cosigner required
- Income-driven repayment plans
- Longer delinquency period before student loan default
- Six-month grace period
- Interest forgiveness for unsubsidized loans
- Forgiveness options for eligible borrowers
- Loan cancellation if you become totally and permanently disabled or die
- No payments while you’re actively enrolled
Borrow Privately with a Cosigner
Applying for private student loans is tough if you have bad credit. Unlike the federal government, private lenders calculate interest rates on a competitive basis. They consider your credit score, debt-to-income ratio, and other factors. If you have bad credit, student loans from a private lender will cost you. Even if you can convince a lender to loan you the money, you’ll get stuck with a high-interest rate. Adding a cosigner is the only way to avoid this.
Typically, parents will cosign private student loans for their kids, but you could ask your grandma, an uncle, or even an older sibling. The person just needs to have a good credit score and be willing to accept responsibility for your loans. If you fail to make payments or default on the loan, it affects their credit and they must pay the money back. It’s a big ask, so tread carefully.
To make the cosigner feel more comfortable, look for private student loans that offer cosigner release. Cosigner release lets your cosigner off the hook after you make a set number of on-time payments. Ask the lenders you speak with about their cosigner release policies. Can’t find one offering cosigner release? You can always refinance your private student loans after graduating from college with a company like LendKey, which offers cosigner release after 12 months of on-time payments. Your cosigner will get off the hook and you’ll keep the lower interest rate.
Go at it Alone
Do you need to borrow more than the federal limits to cover your educational expenses? Are you out of luck finding a cosigner? Don’t fret just yet. You aren’t out of options. Acquiring student loans for bad credit holders without a cosigner is tricky, but not impossible. You can either seek out lenders who will approve your application despite having poor credit, or you can work to raise your credit score.
Accept a High-Interest Rate Private Student Loan
Private lenders want to make money. These lenders want borrowers with a high credit score because they carry less risk. They’re statistically more likely to pay back their loans on time, so they’re more reliable. If you have no credit history or bad credit, it’s hard for borrowers to trust that you’ll pay back the money. That’s why most private lenders will deny anyone without credit or with a low credit score.
Private lenders that agree to loan you money for school won’t do so without a high cost to you. Expect to pay a higher interest rate at the very least. Some lenders might even tack on added administration fees or other charges. Given all of these expenses, accepting a high-interest private loan without a cosigner should be your last resort.
Build Your Credit Score
Have bad credit? Delay you loan applications for a little while until you build it up. Just following some simple steps, you can boost your credit score in no time. Here are a few ways to quickly build credit so that you can secure a better interest rate on your private student loans.
Negotiate Late Payments
Late payments negatively affect a credit score for up to seven years. Speak to your creditors about having any late payments erased. They can report your accounts “paid as agreed” and in exchange, you pay the remaining balance. Your creditors can say no, but it’s worth asking.
Dispute Errors on Your Credit Report
Credit report errors happen. Get a free credit report from all three credit-reporting companies and then look for errors like mistakenly reported late payments or incorrect balances. See an error? Gather up supporting evidence and contact the credit agency to dispute the error. If the agency approves your claim, you’ll see a bump in your credit score.
Stop Using Your Main Credit Card for a Month
Credit card companies report your score a little before your monthly bill is due. Your account balance—which you didn’t pay off just yet—gets reported as a debt. It gets factored into your debt-to-income ratio, which makes up part of the credit score calculations.
Take a break from your go-to credit card to give your credit score a temporary boost. Just pay off your credit card and then wait 30 days before using it again. Your credit card company will report a $0 balance to the credit bureaus, which will lower your debt-to-income ratio and boost your score.
Use Your Inactive Credit Cards
If you’re like most Americans, you probably have three credit cards. But, do you actually use all three? If not, you really should. Credit score calculations consider how many lines of credit you have open, but you need to use the accounts if you want the benefits. Make a small purchase with each of your inactive cards and then pay the money back immediately. You’ll get a little credit score boost with little effort.
Are Private Student Loans for Bad Credit Holders without a Cosigner Worth It?
It all depends on how set you are on your college plans. Student loans are a lifelong decision. They’ll affect your current and future finances until you pay them off. You need to think long and hard about just how much you’re willing to borrow. If you’re in a situation where you have bad credit, no cosigner, and maxed out federal borrowing, you may need to revisit your college plans. Perhaps going with a cheaper four-year college or starting out at a community college while you build up your credit is the best move for you.
Compare the Best Student Loan Refinance Rates
Here are our top student loan refinance picks for 2019
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Student Debt Relief Loan Refinancing Advertiser Disclosure
College Ave: College Ave Student Loans products are made available through either Firstrust Bank, member FDIC or M.Y. Safra Bank, FSB, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.
College Ave Refi Education loans are not currently available to residents of Maine.
1 – The 0.25% auto-pay interest rate reduction applies as long as the borrower or cosigner, if applicable, enrolls in auto-pay and authorizes our loan servicer to automatically deduct your monthly payments from a valid bank account via Automated Clearing House (“ACH”). The rate reduction applies for as long as the monthly payment amount is successfully deducted from the designated bank account and is suspended during periods of forbearance and certain deferments. Variable rates may increase after consummation.
2 – $5,000 is the minimum requirement to refinance. The maximum loan amount is $300,000 for those with medical, dental, pharmacy or veterinary doctorate degrees, and $150,000 for all other undergraduate or graduate degrees. Information advertised valid as of 04/26/2019. Variable interest rates may increase after consummation.
3 – This informational repayment example uses typical loan terms for a refi borrower with a Full Principal & Interest Repayment and a 10-year repayment term, has a $40,000 loan and a 5.5% Annual Percentage Rate (“APR”): 120 monthly payments of $434.11 while in the repayment period, for a total amount of payments of $52,092.61. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary.
ELFI: Subject to credit approval. Terms and conditions apply. To qualify for refinancing or student loans consolidation through ELFI, you must have at least $15,000 in student loan debt and must have earned a bachelor’s degree or higher from an approved post-secondary institution.
LendKey: Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
CommonBond: Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate.
Splash Financial: Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval.com
Earnest: To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest’s fixed-rate loan rates range from 3.89% APR (with autopay) to 7.89% APR (with autopay). Variable rate loan rates range from 2.50% APR (with autopay) to 7.27% APR (with autopay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms of 10 years or less. For loan terms of 10 to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 0.26% and 5.03% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of April 23, 2019 and are subject to change based on market conditions and borrower eligibility.
Auto Pay Discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 04/23/19. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice.
Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 303 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, e-mail us at firstname.lastname@example.org, or call 888-601-2801 for more information on our student loan refinance product.