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.