Best Student Loans for Bad Credit
Your credit history doesn’t need to be a barrier between you and your education: Even borrowers with bad credit or no credit can find student loans. You may not even need a co-signer, although the backing of someone with good credit may improve your chances of approval and your interest rate.
This guide will tell you everything you need to know to help you qualify for a student loan with less-than-perfect credit.
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Find the Best Student Loans for You
Sallie Mae is a publicly traded consumer bank that offers private student loans to pay for undergraduate, graduate and professional degrees, among other educational needs. Congress started Sallie Mae in 1972 as a government-sponsored entity that serviced student loans. The lender went private in 2004 and today provides a range of student loan products. Additionally, Sallie Mae Bank offers savings products and other tools to help families plan and pay for college, including a credit card that earns bonus cash back to help you pay off any student loan.
College Ave exclusively offers student loans. Founded in 2014 and based in Wilmington, Delaware, College Ave offers undergraduate, graduate and parent loans for students enrolled at schools affiliated with College Ave in all 50 states and the District of Columbia. College Ave’s advantage is speed, with applications that take a few minutes to complete and instant decisions.
Earnest is an online lender offering private student loans to college and graduate students, as well as student loan refinancing. The company was founded in 2013. Borrowers can choose their own loan terms to fund up to the full cost of their education.
SoFi is an online lender founded by Stanford business school students in 2011. Originally focused on student loan refinancing, the San Francisco-based company added private student loans in 2019. Choose from undergraduate, graduate, law or MBA, health profession, or parent loans with no fees.
Ascent Funding is an online lender offering undergraduate and graduate student loans for those with or without a co-signer at more than 2,200 eligible schools nationwide. Students who are not U.S. citizens or permanent residents or those with Deferred Action for Childhood Arrivals status – aka “Dreamers” – may apply for an Ascent loan. Ascent Funding was founded in 2015 and is based in San Diego.
PNC offers student loans in all 50 states for students at all stages of postsecondary education, including professional training loans and refinancing. The bank is also engaged in a number of community efforts, including financial literacy programs and PNC Grow Up Great, which supports early childhood education. For eligible undergraduate students, PNC offers opportunities to win $2,000 scholarships toward education expenses.
Purefy allows potential borrowers to compare private student loan and refinancing options. View your options side by side and consult a loan advisor if you need help choosing a loan. This student loan marketplace was founded in 2014 and is based in Washington, D.C.
MPower Financing offers private student loans to undergraduate and graduate students within two years of earning a degree or starting a one- or two-year program at an eligible U.S. or Canadian school. The lender specializes in working with international students and Deferred Action for Childhood Arrivals recipients.
Sparrow, founded in 2020, is an online marketplace where students and parents can fill out a single application to see whether they qualify for loan offers from a variety of lenders. Although Sparrow is not a lender, the free service allows you to compare rates across lending partners. Sparrow is also available to international students.
Credible is a loan comparison marketplace that allows would-be borrowers to shop around for student loans and student loan refinancing that meet their needs. The company was founded in 2013 in San Francisco as a tool to empower borrowers to shop rates and products.
Getting a student loan is harder with bad credit. You must consider all of the usual factors, such as interest rates and loan limits, as well as others specific to your situation.
Here are the most important criteria when selecting student loans for bad credit:
- Consider a co-signer. If you have bad credit, a co-signer – someone who is responsible for payments if you don’t make them – should expand your private loan options, says Madison Block, senior marketing communications and programs associate at the nonprofit American Consumer Credit Counseling. You can look for student loans that offer a co-signer release, which removes the co-signer from your loan once you’ve met certain conditions, including making a set number of on-time payments.
- Consider the effects on your already low credit score. Although not all student loans require credit checks, most private lenders take your creditworthiness into account. If your loan search triggers hard credit inquiries, your credit score may go down. Once you have a loan, you can build a better credit score by making payments on time.
- Consider interest rates. It’s important to think about the interest rates of the student loans you’re considering, Block says. While some lenders may not factor in credit scores or require co-signers, they could charge higher interest rates than those that do, she says. Meanwhile, private lenders that advertise very low interest rates generally require excellent credit and charge higher rates for applicants with bad credit.
- Consider the repayment options. If you think you might struggle to make payments, look for lenders with flexible payment options, which could include extending your repayment term or refinancing to lower your payment, as well as deferment or forbearance plans. Private student loans are generally less flexible than federal student loans, which include several flexible repayment options.
- Consider the loan’s total cost. “Make sure you are doing your homework on the total costs of your loan over time and not just choosing based on interest rate alone,” says Brandon Ashton, director of retirement security at Cornerstone Financial Services in Southfield, Michigan. “Sometimes fees and charges can offset a good interest rate.”
- Consider refinancing in the future. As you build a credit history and hopefully improve your credit score, you may be able to refinance your private student loan to a lower interest rate, Ashton says. If you find a better refinance option, check whether your current lender is willing to beat that competing offer, he says.
Find the Student Loan That’s Right for You
If you have bad credit, being strategic about the student loans you apply for is important. Because applying for several loans can hurt your credit score, target lenders that you think are the best fit for you. Funding U, for instance, offers private student loans to students without a strong credit history by looking at applicants’ academic successes and career paths.
Be sure to explore your federal student loan options before applying for private loans. Federal loans, except for Direct PLUS loans, don’t take your credit history into account, making them better options for applicants with bad credit. Federal loans also tend to offer lower interest rates and greater repayment flexibility and forgiveness options than private student loans. Federal loans don’t require payment until after you graduate, leave school or decide to enroll less than half time, but many private lenders will expect payment while you’re still in school.
You can take the following steps to get a student loan with bad credit:
- Decide how much you need to borrow. Estimating your educational expenses, including tuition and fees, housing, food, and books, can help you determine how much you should borrow. Also, your financial aid award letter should include your school’s one-year cost of attendance. If it doesn’t, you can reach out to your school’s financial aid office for this information.
- Gather information for your application. You can apply for federal student loans and many private student loans online. When you do, you will need to provide personal information, such as your address, Social Security number or alien registration number, and references. If you’ve lived at your current address for less than one year, you may also need to list your previous residence. The application may also ask about your school and your degree, as well as any financial aid or scholarships you expect to receive. Have your federal tax information or tax returns ready, and be prepared to provide details about bank accounts, investments and monthly mortgage or rent payments.
- Apply for federal loans. You’ll need to complete the Free Application for Federal Student Aid, or FAFSA, at fafsa.gov, by mail or on the myStudentAid mobile app to be considered for federal loans, grants or work-study awards. The application becomes available each October for the following school year. Aid is limited, so make sure you meet not only the federal filing deadline, but also state and college FAFSA deadlines. Most state deadlines can be found at the FAFSA website, but also check your school’s website. You should receive a financial aid award letter around the same time as your acceptance letter. Your college will explain how to accept all or part of your aid.
- Consider private loans. “If federal loans aren’t an option or you’ve exhausted your federal loans, then consider applying for a private loan with a co-signer who has good credit,” Ashton says. Having a co-signer can help you get a good interest rate with a reputable lender, he says. Still, make sure you shop around for the best offer. When applying for private student loans for bad credit, the most important factors to evaluate are the repayment period and interest rate, says Josh Simpson, financial advisor with Lake Advisory Group. Many private student loans will need to be paid while you’re in school, but some lenders may offer deferred payments.
- Wait for school certification. If your loan is approved, the next step for all private and federal loans is school certification. During this process, the school confirms your cost of attendance, financial aid eligibility and other loan details. Your school also checks that your loan amount isn’t more than the total cost of attendance, minus any loans or other aid you’ve received. Certification will include your school setting a date to receive the money. How much time this process takes depends on your school and the time of year.
- Interest rates. Bad credit student loans come with higher interest rates, but there may be options to lower those rates, such as by adding a co-signer.
- Repayment terms. The amount of time you have to repay a loan is an important consideration. Repayment options like extending the term, deferring payments or refinancing can provide you with more flexibility in the future.
- Funding available. Consider how much funding each lender offers to ensure that it can meet your needs.
- Eligibility requirements. Lenders may require you to meet certain conditions in order to qualify for bad credit student loans, such as citizenship, age, credit history, income and enrollment status.
- Required fees. Some lenders may charge fees to apply for loans or for any late payments, and it is important to include these when considering the total cost of the loan.
If you have bad credit and know you will need a student loan, improving your credit score before applying is a good idea. Luckily, there are many ways to build your credit and boost your score:
- Pay your bills on time and in full every month. “The most important factor in determining credit scores is payment history,” Block says. “Unfortunately, it can take a few months for your score to improve if your credit history isn’t good to start with.”
- Consider a secured credit card. Secured credit cards work like traditional credit cards, except the credit limit is secured by a deposit you make when you open the account. The deposit is usually equal to your credit line and can be used to pay your balance if you don’t. “Consumers with low or no credit score may have trouble qualifying for a standard credit card,” says Paramita Pal, head of U.S. Bankcard at TD Bank. “In those instances, you may want to consider a secured credit card. Secured cards report to the credit bureaus, so proper use will help a score improve over time.”
- Ask someone with good credit habits to add you as an authorized user to a credit card. The primary cardholder is responsible for payments, but the account – and payment history – will appear in your credit file. Make sure you are piggybacking on the credit of a friend or family member you trust, because that person’s actions – good or bad – will be reflected in your credit history.
- Take out a credit-builder loan. Unlike a traditional loan, a credit-builder loan deposits money into a savings account rather than giving it to you upfront. You won’t be able to access the money until you’ve repaid the loan, and then the lender will give it to you, plus any interest. Typical loans are $300 to $1,000, and borrowers pay in installments over six to 24 months, according to the Consumer Financial Protection Bureau.
- Lower your credit utilization rate. Reducing the percentage of total available credit you’re using, called your credit utilization rate, is one of the fastest ways to improve your credit score. Amounts owed, which accounts for your credit utilization rate, is the second-largest factor in your FICO score. The guideline is to use less than 30% of your credit, if possible. If your available credit is $1,000 and you spend $500, your utilization rate would be 50%. You can reduce your rate by using less credit or asking for a credit limit increase. Just be careful not to spend more on your card if you get a credit limit increase.
- Keep your credit cards open, but avoid carrying balances. Another way to improve your credit score is to pay off card balances. “But do not cancel cards you aren’t using regularly,” Pal says. Length of credit history is another important factor in determining your credit score, according to FICO. A longer credit history will increase your FICO score, Pal says.
- Keep an eye on your credit report. Do so “to ensure the credit agencies have accurate information on your balances, number of credit lines,” Pal says. “Inaccuracies can hurt a credit score.” You can request a free copy of your credit report from all three credit bureaus – Equifax, Experian and Transunion – on AnnualCreditReport.com.
If you have no credit, you will need at least six months of credit usage to generate a FICO score, according to FICO.
A score damaged by serious misuse, such as a foreclosure or bankruptcy, can take years to recover. On the other hand, a poor credit score could improve to fair with only 12 to 18 months of responsible use.
Pros
- Finance your education. Bad credit student loans allow you to finance your education, even if you can’t qualify for other student loans.
- Options for co-signer. Some bad credit student loans may not require a co-signer, and others may offer a co-signer release option. This allows the co-signer to no longer be responsible for your student loan after a certain number of on-time payments.
- Improve your credit score. If you consistently make your student loan payments on time, you should see a rise in your credit score.
Cons
- Pay more interest. Interest rates for student loans are generally determined by a number of factors, including credit history. This means that bad credit student loans tend to have higher interest rates, and you will pay more for your loan.
- Less flexibility. If you don’t qualify for federal student loans, you will have to get private loans. Private loans have less flexible repayment plans and often expect you to make payments while you’re studying.
You can get a student loan without a co-signer if you have bad credit or no credit – most federal loans do not require a co-signer – but you may need one to get a private loan.
Unlike need-based federal loans that are funded by the government, private student loans from banks, credit unions and online lenders often require a credit history to prove that you can pay back the debt. Many students have thin or no credit histories, which makes approval difficult for private loans.
A creditworthy co-signer on a private loan can help your chances of approval and secure a better interest rate than you would get on your own.
If you don’t want a co-signer on your student loan permanently, look for a loan with a co-signer release. This would allow you to release your co-signer from the loan after you meet certain requirements, such as making a set number of on-time payments.
Borrowers with no credit can get student loans, Simpson says. Federal student loans are the best choice because they often don’t require a credit check.
But, adds Ashton, “they have limits on how much you can borrow.”
Federal loan limits depend on the type of loan, as well as your year in school and your dependency status. Generally, graduate students can borrow more than undergraduates: Annual loan limits range from $5,500 to $12,500 for undergraduates, while graduate students can borrow up to $20,500 each year. Undergraduates face an aggregate loan limit between $31,000 and $57,500, while graduate and professional students can borrow up to $138,500, including any undergraduate federal loans.
Private student loan limits depend partly on your credit score and vary by lender. Citizens, for instance, limits undergraduate loan amounts to the full cost of your education, up to $150,000 total. Meanwhile, PNC caps loans at $50,000 annually, with a maximum aggregate educational debt of $225,000.
Federal loans, except for Direct PLUS loans, don’t consider credit history. Many private lenders require a credit score at least in the mid-600s for a student loan. Eligibility requirements for private student loans depend on several factors, such as debt-to-income ratio, earning potential and household income.
Parents who want Direct PLUS loans won’t need to meet a credit score minimum but cannot have an adverse credit history. That means you can’t have debts more than $2,085 that are 90 days or more delinquent or in collections, among other credit problems.
A new loan application results in a hard inquiry on your credit report, which means a creditor has requested to review your credit file to assess your risk as a borrower. “Having too many hard inquiries in a short amount of time can decrease your score,” Block says. But one or two inquiries per year, she says, should not significantly affect your credit score.
For most people, one credit inquiry will drop your FICO score by up to five points. That’s different from applying for several credit cards and a loan in one week, which may indicate financial problems.
The stronger your credit history, the better your credit score will tolerate a credit inquiry. Your score will increase within a few months if the rest of your credit history remains strong.
Inquiries remain on your credit report for two years, but FICO scores only consider the ones from the last 12 months. You can also look for lenders that offer preapproval to get estimated interest rates before applying.
Not all student loans require a credit check. “Federal student loans don’t take credit history into account like private student loans do,” Block says.
This means that applying for a federal student loan won’t result in a hard inquiry on your credit report. Direct PLUS loans are the exception.
If you can’t get enough federal help to pay for college, then consider private student loans. Adding a co-signer should help you qualify for a loan and pay a lower interest rate than you would on your own, Block says.
Private lenders may use a soft credit inquiry to preapprove student applicants, which will give borrowers a better idea of their estimated interest rate and loan eligibility. Soft inquiries, unlike hard inquiries, will not hurt your credit score. That said, a poor credit history will affect your chances of approval.
There are some alternatives for bad credit borrowers.
- Speak to your financial aid office. Some schools offer payment plans that allow you to pay tuition over a number of months instead of one lump sum.
- Apply for scholarships and grants. You may be able to reduce the need for loans by receiving scholarships and grants. To qualify, you will have to meet certain application criteria which could be based on need or accomplishments.
- Look into a Parent PLUS loan. If you cannot qualify for student loans, your parents may be able to qualify for federal Parent PLUS loans. These loans are made to parents of undergraduate students and tend to have high interest rates with repayment starting right away.
- Consider a home equity loan. If you or your parents own a home, a home equity loan might be an option to finance your education. This borrows against the cost of the home, but requires a second mortgage payment and using the house as collateral.
- Reduce your costs. If you’re not able to qualify for any additional loans or funding, you may need to reduce your education costs. This could mean living at home while studying or attending a school with lower tuition.
U.S. News selects the Best Loan Companies by evaluating affordability, borrower eligibility criteria and customer service. Those with the highest overall scores are considered the best lenders.
To calculate each score, we use data about the lender and its loan offerings, giving greater weight to factors that matter most to borrowers. The scoring factors for private student loan providers are customer service ratings, fixed APR, variable APR, loan product availability, minimum and maximum loan terms, minimum and maximum loan amounts, minimum FICO score, and online features.
The weight each scoring factor receives is based on a nationwide survey on what borrowers look for in a lender.
To receive a rating, lenders must offer qualifying loans nationwide and have a good reputation within the industry. Read more about our methodology.
Best for fixed APR
The Rhode Island Student Loan Authority is a nonprofit quasi-state authority that provides college financing to students and parents. The lender specializes in providing loans to Rhode Island residents and students, though not all loans have residency requirements.
Best for no fees
Discover Bank has been operating for more than 100 years, and since 2010, it has offered private student loans to students attending more than 2,400 colleges and universities. Loans of up to 100% of education costs with fixed or variable rates are available.
Best for co-borrowers
The Massachusetts Educational Financing Authority is a state-chartered nonprofit established in 1982 to offer low-cost financing options to college students and their families. You can live anywhere in the U.S. and access Boston-based MEFA’s private student loans, including undergraduate, graduate or refinancing options.
Best for small loan amounts
EDvestinU is the nonprofit student loan lending and refinancing organization of the New Hampshire Higher Education Loan Corp. Undergraduate and graduate loans and student loan consolidation are available to borrowers with both fixed and variable rates available in select states and Puerto Rico.
Best for online service
London-based Prodigy Finance offers postgraduate student loans for qualified borrowers from about 150 countries who plan to study as international students at one of more than 850 schools across 18 countries. Students from the United Kingdom can also get loans from Prodigy Finance to study domestically. Since its founding in 2007, Prodigy Finance has provided funding to more than 20,000 students.
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