How to qualify for student loans with bad credit

Your credit score is like a grade — one that tells lenders how likely you are to pay back money you've borrowed. The higher your credit score, the more willing lenders are to work with you.

If you have a college-age child, you'll need to factor in their credit score as well as your own when considering student loans. If you or your child need to take out student loans but have bad credit (or no credit), what are your borrowing options?

Here are some tips on how to qualify for student loans, even with less than great credit.

What is "bad" credit?

According to credit bureau Experian®, a score that falls between 300 to 579 ranks as "very poor". One between 580 and 669 ranks as "fair." If your credit score falls within these ranges, you may face difficulties getting approved for a loan and might pay higher interest rates if approved.

90% of major lenders use the FICO® scoring method. Scores range from 300 to 850 and consider five main factors:

Do student loans require good credit?

Not all student loans require good credit.

Federal loans for students don't require good credit, and it's not considered a factor for Direct Subsidized or Direct Unsubsidized Loans.

For federal student loans for parents, such as the Parent PLUS loan, a credit check is conducted to ensure you don't have an adverse credit history.

Most private lenders require a credit score in the mid-600s to qualify for their student loans. Bad or no credit loans exist, but you'll typically have a higher interest rate.

How to qualify for student loans with bad credit or no credit

There are several ways to qualify for student loans even if you have bad or no credit.

1. Opt for federal student loans

Your credit score has no impact on whether you qualify for federal student loans. You simply have to fill out the Free Application for Federal Student Aid (FAFSA) each year to qualify for one of these federal loan types:

• Direct Subsidized Loans: for dependent students who have demonstrated financial need.
• Direct Unsubsidized Loans: Most dependent students are eligible for these as long as you haven't reached your total lifetime limit.
• Parent PLUS Loans: This type of loan does require a credit check, but only for adverse history (like missed payments, bankruptcy, foreclosure) rather than a bad credit score.

Federal student loans are a solid way to fund your education and fill the gap between your cost of attendance and gift aid offered.

2. Find lenders who offer alternative credit checks

Private student loans are made through independent financial institutions, such as banks and credit unions. The loan terms, interest rates and qualification criteria vary depending on the lender. These loans are subject to a credit check, with your score impacting approval, rates and terms. Usually, lenders reserve the lowest interest rates for borrowers with an excellent credit report and may not approve those with poor credit.

However, some lenders offer student loans to individuals with bad or no credit. For example, local and regional credit unions have underwriting guidelines for issuing loans that are sometimes more flexible to meet the needs of their community and its members. But they often come with higher interest rates, and you could be very restricted on how much you can borrow.

Other lenders consider factors beyond your creditworthiness, such as your academic performance, future job prospects and how far you are in your degree program.

3. Apply with a cosigner

If you don't have a credit history (or your history is less than perfect) and you need a private student loan to pay for college, you most likely will have to apply with a cosigner who meets the lender's credit criteria. A cosigner is an individual who shares responsibility for repaying your loan along with the primary borrower. If you're ever unable to pay the loan, the cosigner takes legal obligation to pay it back. For students, these are typically parents, grandparents or other relatives.

Can you refinance student loans with bad credit?

Whether you can refinance student loans with bad credit depends on the lender. When you refinance, you're usually aiming for a lower interest rate or adjusted terms. If approved, the old loan is paid off by the new refinanced loan.

If you have low credit, you might not qualify for the newly refinanced loan or favorable terms and rates.

You can only refinance federal and private student loans through a private lender because the federal government only offers loan consolidation. The refinancing process involves taking out a new loan through a private lender and using the funds to pay off your existing loan.

It's important to note that if you refinance federal student loans you will lose access to federal benefits and protections, such as deferment, income-driven repayment plans and forbearance.

Ready to pay for college?

Make sure you exhaust scholarships, grants and federal aid first. Visit the Student Hub to explore all your options today.

When other aid options aren't enough, private student loans can fund the gap. And we're here to help you make sense of it all. For more information on student lending, check out our student loan options or call 1-888-411-0266 to speak to a Student Lending Specialist.