If you have bad credit, you may be wondering if it’s possible to get a student loan. The good news is that there are a number of options available to you, including federal and private student loans.
Our personal advice to students looking for loans:
- Look for cheaper schools. Consider a local community college or in-state public university. These schools are often much more affordable than private schools.
- Apply for scholarships. There are many different scholarships available, so take the time to apply for as many as you can. Even a small scholarship can help reduce your loan burden.
- Don’t take out private loans. Private loans typically have higher interest rates and fees than federal loans. If you must take out a loan, try to stick to federal loans first. Four years of private loans could likely ruin your finances for the foreseeable future, unless you land an amazing job after school.
- Be careful of Sallie Mae. Sallie Mae is a private student loan lender that has been criticized for its predatory lending practices, such as high interest rates, misleading borrowers about their repayment options, and aggressively collecting on defaulted loans. If you must take out a private loan, try to avoid Sallie Mae.
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The Best Option for Student Loans for Bad Credit
The best option that you have education loans with bad credit is scholarship. Fortunately, the value of scholarships in the United States has been increasing. This has increased as the total number of billionaires has been increasing. Most of these billionaires and millionaires donate to their alma mater.
In 2014, hedge fund billionaire, Ken Griffin, became the biggest donor to Harvard University. He donated more than $150 million. Michael Bloomberg donated $350 million to Johns Hopkins, while Charles Johnson donated $200 million to Yale. Stephen Ross, who founded real estate giant, Related, donated more than $200 million to the University of Michigan.
Indeed, while tuition costs have been increasing, 60% of undergraduate students in Harvard received financial aid. Students that are from families that make below $65k every year pay no fees, while families that make between $65k and $150k pay no more than 10% of their income to attend the institution.
Therefore, if you have financial difficulties, we recommend that you consider applying for college aid from your campus.
The following are the main options for student loans in the US, regardless of your credit score:
Federal Student Loans
One of the options for education loans with bad credit is the federal government loans. These Federal Student Loans were created to help students go through college. They are usually better than private insurance in various ways. For example, they do not require credit check.
To apply for a federal student loan, you just need to download and fill a form from the Federal Student Aid. To do so, you need to create an ID on the website. After you fill this form, you will receive the feedback from FAFSA. This will tell you whether you qualify for the loan or not.
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These are the main types of Federal Student Loans:
- Direct subsidized loans: The loans are federal student loans available to undergraduate students who demonstrate financial need. The federal government pays the interest on these loans while the student is in school at least half-time, during a six-month grace period after graduation, and during periods of deferment.
- Direct unsubsidized loans: These loans are federal student loans available to undergraduate and graduate students, regardless of financial need. The federal government does not pay the interest on these loans while the student is in school or during periods of deferment.
- Direct PLUS loans: These are federal student loans loans that parents can take out to help pay for their child’s college education. Credit checks are required for these loans, but borrowers with poor credit may still be able to qualify with a co-signer. The loans are in the name of the parent only and never the student. This means that the parent is legally responsible for repaying the loan, even if the student is unable to do so. If you and your parent agree, you can write up a separate contract that requires you to pay some or all of the Direct PLUS loan. You may also be able to refinance the Direct PLUS loan into your name after you graduate.
- Direct consolidation loan: A Direct consolidation loan combines multiple federal student loans into a single loan with one monthly payment. This can make it easier to manage student loan debt and may also qualify borrowers for lower interest rates and more flexible repayment options.
- Grad PLUS Loans: This is a type of federal student loan that graduate and professional students can use to help pay for the cost of attendance. They are unsubsidized, which means that interest accrues from the time the loan is disbursed until it is repaid. The interest rate for Grad PLUS Loans is fixed at 7.54% for the 2023-2024 academic year. While there is a credit check associated with the Graduate PLUS Loan, there is not a credit score requirement. This means that students with bad credit may still be able to qualify for a Grad PLUS Loan.
When applying for federal student loans, start with subsidized direct loans, which do not accrue interest while you are in school. If you need more money, you can also apply for unsubsidized direct loans. However, there are strict limits on how much undergraduate students can borrow in their own name, so it is important to avoid exceeding those limits. To apply for federal student loans, you must submit the Free Application for Federal Student Aid (FAFSA).
Federal loans are typically subsidized for first-year undergraduate students. This means that the government pays the interest on the loan while you are in school and for the first six months after graduation. The aggregate limit for federal loans is $138,500 for undergraduate and graduate students combined. For example, first-year undergraduate students can borrow up to $5,500 in subsidized federal loans and $7,500 in unsubsidized federal loans. Graduate students can borrow up to $20,500 in unsubsidized federal loans each year.
Here’s a table summarising types of federal loans:
| Loan type | Eligibility | Interest subsidized? | Credit check required? |
|---|---|---|---|
| Direct subsidized loan | Undergraduate students with financial need | Yes | No |
| Direct unsubsidized loan | Undergraduate and graduate students | No | No |
| Direct PLUS loan | Parents and undergraduate students | No | Yes |
| Direct consolidation loan | Borrowers with multiple federal student loans | Yes and no (depending on the type of loans being consolidated) | No |
| Grad PLUS Loans | Graduate and professional students | No | No (credit check, but no credit score requirement) |
Private Student Loans
Private student loans for bad credit are other options that you have if you have failed to secure government financing and a scholarship. There are several banks, credit unions, and online lenders that can give you this financing. These institutions will always check your credit score. However, these loans usually attract a higher interest rate because you are considered a high-risk customer. To reduce your rates, we recommend that you do the following:
- Have a cosigner. This is also known as a guarantor. This could be a friend or family member that has a good credit score. The financier will be at peace because they can go to the cosigner if you are unable to pay the money. This method is popular than bad credit student loans without cosigner.
- Have a collateral. This is popular among older people who have some assets. In this method, you provide your asset to act as a security for the loan.
Find out more: Private Student Loans for Bad Credit
Federal Loans vs Private Loans
- Federal loans have a lower interest rate than those from private institutions. This is because rates are usually set by congress. For example, interest rates for loans taken this year are between 4.53% and 7.08%.
- They have fixed interest rates, which means that rates will not change when you start repaying.
- While credit score is important, the approval period is usually less.
- The payment period is usually flexible. For example, you need to have a job to pay back the money.
- A likelihood for loan forgiveness and temporary stop payments.
Additional Student Loan Options
In addition to federal and private student loans, there are a number of other options available to students with bad credit. These include:
- Scholarships: Scholarships are a great way to finance your education without having to take out a loan. There are a number of scholarships available to students with bad credit. To find scholarships, you can search online or contact your school’s financial aid office.
- Grants: Grants are another form of financial aid that you don’t have to repay. There are a number of grants available to students with bad credit. One of them is Pell Grants, afederal financial aid that is awarded to undergraduate students who demonstrate exceptional financial need. Pell Grants do not have to be repaid, unlike student loans. The Pell Grant limit is currently $7,395 per year for the 2023-2024 academic year. To find grants, you can search online or contact your school’s financial aid office.
- Work-study: Work-study is a federal program that allows students to work part-time jobs on campus or with off-campus employers to help pay for college expenses.
- Income-share agreements (ISAs): An income-share agreement (ISA) is a type of financing arrangement in which a student borrows money to pay for college tuition and fees. In return, the student agrees to pay a percentage of their post-graduation income to the lender for a set period of time, typically five to ten years. The ISA repayment percentage is typically set between 5% and 10% of the student’s income. ISAs can be a good option for students with bad credit because they don’t have fixed monthly payments.
- Bloom Institute of Technology: Bloom Institute of Technology is a for-profit college that offers technology-related courses. It has a unique tuition model where it pays your tuition and then takes a small cut from your salary when you get a job. This can be a good option for students with bad credit because they don’t have to worry about making monthly payments while they are in school.
Tips for Getting Approved for a Student Loan with Bad Credit
If you have bad credit, there are a few things you can do to increase your chances of getting approved for a student loan:
- Apply for a federal student loan first. Federal student loans have more lenient credit requirements than private student loans.
- Consider getting a cosigner. A cosigner is someone with good credit who agrees to repay the loan if you default.
- Offer collateral. Collateral is an asset, such as a car or house, that the lender can seize if you default on the loan.
- Improve your credit. Improve your credit score, before applying for a loan. This may take some time, but it can help you qualify for a lower interest rate.
- Be honest about your financial situation. Don’t try to hide your bad credit from the lender.
Getting a Student Loans with Bad Credit
Having a bad credit is one of the worst things that you can ever go through. Getting a student loan with bad credit is possible. Federal student loans are the best option for borrowers with bad credit, as they do not require a credit check. However, federal student loans have borrowing limits, so you may need to take out a private student loan to cover the remaining costs of your education. Private student loans can also be a good option if you need to borrow more money than you can qualify for in federal loans. However, private lenders typically have stricter credit requirements and higher interest rates than federal lenders.
Taking out a student loan is a big decision, especially if you have bad credit. Be sure to weigh all of your options carefully before making a decision. When looking for loans for students with bad credit, we recommend that you try looking for financial aid and getting funds from the government. We also recommend that you take time to consider the course you want to do. Some courses are simply not marketable in the job industry. Indeed, most people with college debt complain about lacking a job or having a job that pays very little. We also recommend that you take the cheaper online courses offered by the likes of EDX and Udacity.
