Even with bad credit, you can get student loans. Some federal and state loans and even some private options don’t require a credit check at all. Other loans you can receive as long as you’re not in default on any accounts. Your credit only affects your eligibility for a few types of loans, including some private student loans, Direct PLUS loans, and Direct Grad PLUS loans.
How Credit Affects Your Student Loan Options
Your credit score doesn’t impact most federal loans at all. You just need to complete the Free Application for Federal Student Aid (FAFSA®) online. This will connect you with grants, loans, and work-study options available through the U.S. Department of Education.
Credit doesn’t affect your ability to receive Direct Subsidized Loans or Direct Unsubsidized Loans. You can also get Perkins Loans regardless of credit. However, with a Direct PLUS Loan or Direct Grad PLUS loan, the U.S. Department of Education acts as your vendor, and credit does affect your eligibility.
Getting Loans With Bad Credit
Regardless of your credit score, filling out the FAFSA® will help you receive the maximum amount of Direct Subsidized and Direct Unsubsidized loans. Even with bad credit, you have two options that will allow you to apply for and receive Direct PLUS loans and Direct Grad PLUS loans.
Obtain an Endorser
An endorser is like a cosigner — someone with good credit history who agrees to repay your loans if you can’t. The cosigner or endorser will pay your debt if you default on the loan. If you’re a parent borrowing for your child, the student can’t be your endorser. Direct PLUS Loans and Direct Grad PLUS Loans are an option for students with bad credit if they can obtain an endorser.
Document Extenuating Circumstances
You can receive Direct PLUS and Direct Grad PLUS loans even with bad credit by demonstrating that extenuating circumstances have contributed to your low score. Extenuating circumstances are things such as having a low credit score because of a foreclosure or a defaulted loan that has been paid.
If you go through with either of these options to receive Direct PLUS or Direct Grad PLUS loans, you must also complete credit counseling for PLUS loan borrowers.
A Loan Alternative: Income Share Agreements
If you find that your loan options are limited because of credit, income share agreements may help you pay for college. With these agreements, a funder pays for all your schooling upfront. Then, instead of making payments like you would with a traditional loan, the provider or funder takes a percentage of your salary after you graduate.
Unlike loans, the amount invested in you through an income share agreement doesn’t accrue interest. There’s also usually a maximum profit that the funder can make back from the amount given to you. Learn more about the advantages and disadvantages of ISAs here.
Budgeting for school with bad credit can seem extra stressful, but you have many loan options available through the federal government. Take advantage of these resources and consider finding an endorser if needed to secure the money you need for college.