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Student Loan Options for Borrowers With Bad Credit

As an undergraduate, you can borrow federal student loans regardless of your credit score. But you'll likely need a co-signer for private student loans.
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Having bad credit — or lacking it altogether — won’t keep you from getting a student loan.

Undergraduate students can borrow federal student loans regardless of their credit scores, and parents and graduate students with less-than-stellar scores can get federal student loans if their credit reports are free of negative marks.

Undergraduate students can borrow federal student loans regardless of their credit scores.

If federal loans don’t cover all your college costs, you may need to consider private student loans, which is where your credit history will come into play. If you have bad credit, you can get a private student loan with a co-signer.

Here’s a look at all the student loan options for people with bad credit. Federal student loan rates are for the 2016-17 school year.

Loan typeCredit check?Fixed rateLoan fee
Federal direct subsidizedNo3.76%1.07%
Federal direct unsubsidizedNo3.76% or 5.31%*1.07%
Federal PerkinsNo5.00%None
Federal direct PLUSYes6.31%4.27%
PrivateYes4.25% to 15.18%**Typically no origination fee

*Federal direct unsubsidized loans have a 3.76% interest rate for undergraduate students and a 5.31% interest rate for graduate or professional students.

**Updated April 2, 2018. This range is based on the annual percentage rates of the six lenders on NerdWallet’s private student loan marketplace. Unlike federal loans, private loans also offer variable interest rates, which are subject to change and currently range from almost 3% to around 13% APR.

Federal student loans for undergraduate students

The following student loans are available to undergraduate students regardless of their credit history. To apply, submit the Free Application for Federal Student Aid. You’ll get the loan offers in your financial aid award letters.

  • Direct subsidized loans: You can qualify for these fixed-rate loans, which are sometimes called subsidized Stafford loans, if you have a financial need. The maximum amount you can borrow each year is $3,500, $4,500 or $5,500, depending on your year in school. Because the loan is subsidized, the government will pay the interest that accrues during periods of deferment, including while you’re in school.
  • Direct unsubsidized loans: Regardless of financial need, all students qualify for these fixed-rate loans, which are sometimes called unsubsidized Stafford loans. If you’re a dependent student — meaning you’re under 24, unmarried and aren’t a veteran — you can borrow $5,500 to $7,500 in subsidized loans each year, depending on your year in school. Unlike with subsidized loans, you’ll have to pay the interest that accrues on these loans while you’re in school.
  • Perkins loans: You may qualify for this fixed-rate loan program if you have an extreme financial need. Unlike other federal loan programs, Perkins loans are funded by participating colleges instead of the federal government directly, so whether you qualify depends on the school you’re attending and the availability of funds. Undergraduates can borrow up to $5,500 a year. However, the program is due to be phased out starting Sept. 30, 2017.

Federal student loans for graduate students and parents

Graduate students can borrow direct unsubsidized loans, which don’t require a credit check, and both parents and graduate students can borrow PLUS loans. The PLUS loan application includes a credit check, but the government isn’t necessarily looking for a pristine report. It just wants to see that you don’t have any negative marks, or “adverse credit,” like a recent bankruptcy or foreclosure. To apply for both loan types, fill out the FAFSA.

  • Direct unsubsidized loans: The interest rate on unsubsidized loans for graduate students is lower than the Direct PLUS loan rate, so borrow all the unsubsidized loan dollars you can — $20,500 a year — before dipping into PLUS loan dollars.
  • Direct PLUS loans: Graduate students who max out their unsubsidized loans and parents who want to borrow to pay their kids’ tuition can turn to Direct PLUS loans. Since PLUS loans have the highest rates of all federal student loans and a high loan fee, it could be worth exploring private loan options as an alternative. But if you have bad credit and you don’t have a co-signer who has good credit, your rate could be higher with a private loan.

Private student loans for borrowers with bad credit

If you reach your federal loan limit and still need extra money to cover your college costs, you can look to private student loans. (Compare interest rates, lending requirements and learn what to look for at NerdWallet’s private student loans marketplace.)

Private loans typically don’t have the protections that federal loans do, including the option to make payments based on your income and, in some cases, get loan forgiveness.

  • Private student loans without a co-signer: You typically need decent credit — a score in at least the mid 600s or low 700 range — to qualify for a private student loan. Don’t assume your credit is bad without checking your score. You can do it for free by creating an account and logging into NerdWallet’s credit dashboard.

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  • Private student loans with a co-signer: If you really do have bad credit, you can still qualify for a private loan if you have a co-signer who has good credit. Your co-signer, typically a relative or friend, will be on the hook for your loan payments if you don’t make them. Some private lenders will let you release your co-signer from that responsibility after you make on-time payments for a certain period, which may appeal to someone who’s willing to be your co-signer but doesn’t want to be responsible for your loan forever.

A variety of lenders offer student loans, including big banks like Sallie Mae and Wells Fargo, online lenders like College Ave, regional banks and credit unions. You can see many of your private student loan options on NerdWallet’s private student loan page.  Compare them to find the best interest rate that you or your co-signer qualify for.

» MORE: How to get a student loan without a co-signer

A word of caution

Avoid using personal loans or credit cards to pay for your college costs. You could end up paying higher interest rates, and those products aren’t likely to offer the same features that even most private student loans do, such as the opportunity to defer payments while you’re in school.

Finally, borrow only what you need to cover college costs. If you’re struggling financially, it may be tempting to borrow more money to pay for your other needs, but it’s best to minimize the amount of debt you’ll have to pay back later.

Next steps

Start working to boost your credit now so you’ll have a good score when you need it in the future, like for renting an apartment, buying a car or signing up for a cell phone plan. Good credit gives you access to lower interest rates and a wider choice of loan products. Check out NerdWallet’s guide to building credit to learn more.

Teddy Nykiel is a staff writer at NerdWallet, a personal finance website. Email: Twitter: @teddynykiel.

Updated Sept. 13, 2016.